A complete guide to loss of use coverage

Car insurance isn't just about protecting your vehicle—it's about safeguarding your finances and lifestyle. These days, more Canadians are looking beyond basic insurance coverage and opting for additional policies, such as loss of use coverage, to build a more comprehensive insurance plan. Why? Because if your vehicle is at the auto body shop for days, life doesn't stop. You still need to get to work, pick up groceries, and run other errands.

Loss of use coverage, also known as transportation replacement coverage, ensures you aren't left without a working vehicle. It covers the cost of a temporary vehicle replacement when your car is damaged in an insured claim and can't be safely driven. Whether it's a rental vehicle, taxi, or public transportation costs, this optional insurance policy keeps you moving, so you don't have to put your life on hold.

As vehicle repair times lengthen due to parts shortages and higher labour costs, this kind of coverage is becoming more essential than ever. In this guide, we'll provide a detailed overview of loss of use coverage, including what is and isn't covered, and more. Stick around for more information.

How loss of use coverage helps drivers

Imagine you’re driving home from work and get into a car accident. It’s not your fault, but your car is damaged enough that it requires some serious repairs. Mechanics say it’ll take 10 days. What now?

Without transportation, you may have to scramble. From downloading rideshare apps, relying on friends or family, or taking public transit, the aftermath can be time-consuming and stressful, especially if you have kids, pets, a job with a commute, or appointments to keep.

This is where loss of use coverage can really come in handy. Whether the damage caused was due to a collision, theft, or other incident, loss of use insurance offers peace of mind.

Let's look at two hypothetical examples of how loss of use coverage can help you as a motorist if your vehicle is severely damaged or stolen:

Example 1

Maria is a nurse in Calgary who was rear-ended on her way home from a 12-hour night shift. Because she has loss of use coverage, she was able to file an insurance claim with her insurance company to pay for a rental vehicle that allowed her to continue driving back and forth to work for the two weeks her vehicle was being repaired.

Example 2

Evan is a small business owner in Toronto who had his vehicle stolen from his driveway overnight. His loss of use coverage allowed him to rent a van from a rental company, so he could continue making deliveries while waiting for his new replacement vehicle without having to pay out of pocket.

Both of these scenarios outline the benefits of additional coverage, like loss of use insurance. Whether you live in a big city or a rural town, being without your vehicle is more than an inconvenience. It’s a roadblock to your everyday lifestyle.

What is covered under loss of use coverage?

Loss of use coverage will cover reasonable transportation expenses while your insured vehicle is out of commission as a result of a covered loss. Here's a closer look at what expenses are considered reasonable under this policy and are typically covered:

• Car accidents.

• Weather-related damage such as floods, hailstorms, or fallen trees.

• Theft or vandalism.

• Fire or explosion damage.

A closer look at the modes of transportation covered under loss‑of‑use coverage:

Types of transportation covered:

Now, here's a closer look at the types of expenses that you can claim up to your coverage limit:

• Rental car.

• Public transit passes.

• Taxi or ride-share expenses.

One thing to keep in mind is that this policy covers expenses up to a day limit or maximum duration, which we'll go over in more detail in a bit. Another thing to be aware of is that you need to be approved by your insurance company before you can add loss of use coverage to your policy. Do not assume it is available to you. Instead, speak with an insurance broker or insurance representative before requesting it be added to your policy.

Furthermore, when you use loss of use coverage, you may be required to pay certain expenses upfront and submit receipts later for reimbursement. For example, you might have to pay the cost of the taxi or Uber out of pocket. However, if you keep the receipts, you can submit them to your insurance company, and they can reimburse you for them at a later date, such as once the claim has been settled.

The claims process: How loss of use insurance works

So, how do you use this type of coverage? Let's take a closer look at how your claims process will play out:

1. Report the incident to your car insurance company

As soon as the collision or other covered peril occurs, contact your insurance provider and report your damaged vehicle. Remember to provide as much information as possible and record the damage with videos, photos, and other evidence.

2. Confirm you have the right coverage

Once your claims have been filed, ask your insurance agent if you have loss of use coverage under your current auto insurance plan. If they say yes, then ask them to inform you what your daily policy limits are. For example, you could be covered up to $50 a day for 10 days. But keep in mind that this will vary based on your actual policy and your insurance provider.

3. Get your vehicle assessed

The next thing you need to do is get your vehicle assessed by an auto repair shop in your area. Many insurance providers will give you a list of pre-vetted body shops you can choose from. Others may allow you to choose your own shop.

4. Arrange for your substitute vehicle

Once approved, you can go ahead and get a rental car, use public transit or book ride shares to get to and from where you need to be.

5. Keep your receipts

If you're paying out of pocket for transit, taxis, or ride-share apps, keep all receipts and submit them to your insurer so you can be reimbursed for these costs.

The following are frequent obstacles you may run into when pursuing loss‑of‑use coverage:

Common setbacks

• Your loss of use claim is denied: If the damage is not covered under your policy, loss of use won't apply, and you will be responsible for paying for any additional expenses out of your own pocket.

• Disputes over your temporary vehicle: Your insurer may only approve a rental similar to your insured vehicle, not a luxury upgrade. If a rental agency gives you a choice between different classes of vehicles, it is recommended that you choose the cheaper one, especially if you want to maximize the amount of time you can use it.

Ultimately, if you run into issues or have questions about your coverage, reach out to a broker from BrokerLink. We'll help you navigate your insurance policy before you contact your provider.

What's not typically covered by loss of use

Loss of use helps you cover additional costs you may incur from transportation during the time your vehicle is being repaired. However, like other coverages, exclusions exist. Let's take a closer look at what is not covered by this type of policy:

Non-covered perils

Your loss‑of‑use coverage excludes the following perils:

• Mechanical breakdowns and general wear and tear from use are not covered under this policy.

• If you take your vehicle to an auto shop voluntarily, you cannot file a claim for expenses during this time.

Unauthorized transportation

Here’s a summary of unauthorized transportation that isn't coverd by loss-of-use coverage:

• If you rent a car that’s significantly more expensive than your regular vehicle, your insurer may only reimburse the amount they would’ve paid for a basic rental to ensure it remains within your daily coverage limit.

• Choosing luxury ride-sharing services like Uber Black over regular Uber may not be reimbursed in the full amount if regular Uber services are available to you.

Coverage duration limits

Excluded duration/time limits under loss‑of‑use coverage:

• If your claim is approved for 10 days of coverage, but your vehicle takes 15 days to repair, you’re responsible for the remaining five days.

Uninsured vehicles

Uninsured vehicles—Loss of Use coverage does not cover:

• If your damaged vehicle wasn’t covered under your insurance policy or if you had an insurance lapse during this time, you won’t be eligible for reimbursement.

Coverage limits and durations

Loss of use coverage typically comes with a dollar and time limit. These limits can vary depending on your insurance provider, the type of coverage you have, and your vehicle. Here's a general overview of what you can expect from limit structures:

Common limit structures

For Loss of Use coverage, common limit structures include:

• Daily Limit: Typically $25 to $50 per day.

• Total Cap: Often between $750 and $1,000.

• Maximum Duration: From 10 to 15 days.

Insurers base these limits on what they consider to be a “reasonable” cost for a similar vehicle to the one you own. For example, if you have a larger family and drive a minivan, your insurer may approve a rental minivan or something similar, not a luxury vehicle.

One thing to keep in mind is that if repairs take longer than expected, you may exceed your coverage gap. In some cases, your provider may extend your coverage, while in others, you may be responsible for paying additional expenses out of your own pocket.

If you have loss of use coverage and are unsure about what your daily and total cap limits are, speak with a broker from BrokerLink for assistance.

The cost of loss of use insurance

So, how much does this optional insurance coverage cost? Adding this to your standard insurance plan will vary between insurance providers and provinces. However, you can expect a 5 to 10% increase on your premium. Keep in mind that as of 2024, Canadian auto insurance premiums are already up 9.6% year-over-year. That said, compared to the cost of renting a car from a rental company on your own, it's considered an affordable add-on to ensure your finances are protected. Let's look at hypothetical costs to give this more context:

• Compact car in Winnipeg: $25 a year added to your premium.

• SUV in Toronto: Between $45 and $60 a year.

• Luxury vehicle in Vancouver: $75 or more a year.

Given that rental cars can cost between $40 and $200 or more a day, making a single claim for your loss of use coverage will offset your added premium. The table below presents coverage add‑ons with their annual and potential rental costs:

When is loss of use worth it?

Loss of use coverage makes sense for a lot of Canadians, but for some, it may not be worth the added cost. Here's how you can tell whether or not you would benefit from this policy:

When it's worth it

Loss of Use coverage may be necessary in the following circumstances:

• Daily commuters who rely on their vehicle to get to work.

• Parents who drive their kids to school or activities.

• People in rural areas with limited public transit options.

• Households that have one vehicle.

When it may not be necessary

Loss‑of‑use coverage may not be needed in the following circumstances:

• Those living and working in the city where reliable transit options are available, and those who have flexible schedules.

• Multi-vehicle households where backup options exist.

• Retirees or remote workers who drive infrequently.

Think of it as a safety net. Even if you don’t use it every year, it’s there for those unexpected moments when you really need reliable transportation.

Comparing loss of use coverage with other options

Loss of use coverage isn't the only optional policy you can add to your standard insurance plan. So, how does a loss of use policy compare to others? Here's a quick side-by-side breakdown:

Can I purchase loss of use for a business vehicle?

Yes. Purchasing commercial auto insurance coverage for any business vehicles is critical. Not only is it an important part of risk management, but it may be mandatory. If you want to know how to insure business vehicles, reach out to an insurance professional near you.

Does loss of use have a deductible?

No. Loss of use coverage is not subject to a deductible. However, the reason for which you have to use your loss of use coverage may be subject to a deductible, such as if you are getting your windshield replaced or getting vehicle repairs done due to an accident.

Is gas and parking included in this loss of use?

Most likely not. This policy only covers expenses seen as "reasonable" during the time you are unable to drive your own vehicle. Most of the time, this will only encompass the rental car itself, with no additional fees like parking and gas.

Is there a waiting period before loss of use coverage activates?

No, there is typically no waiting period before your coverage applies once you've filed your claim and had it approved by your adjuster.

Are daily mileage limits applied to rental vehicles under this coverage?

Daily mileage limits may be applied to your rental vehicle under this policy. However, it depends on the specifics of your policy itself and the rental company.

The bottom line

With repair and theft rates on the rise in Canada, loss of use coverage is a smart investment for many Canadians, offering peace of mind during the claims process. But it's not for everyone.

Whether you live in a busy city or a quiet rural community, having a backup plan matters. At BrokerLink, we help Canadians find affordable car insurance that matches their needs and budget. Whether you have questions about what documents you need to bring with you to your appointment, want to make changes to your policy and add loss of use coverage, or have other inquiries about car insurance in Canada, an experienced broker from our team is here to help.

To work with a broker for your insurance needs, contact BrokerLink over the phone to speak with someone directly. You can also get a free, competitive insurance quote from the comfort of your own home using our online quote tool at any time!

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