Loss of use coverage

12 minute read Published on May 23, 2023 by BrokerLink Communications

Damaged blue car.

Many drivers in Canada choose to add loss of use coverage to their car insurance policies. It is one of many types of auto insurance available to policyholders, and it can have huge benefits. Continue reading to learn more about how loss of use coverage works in Canada and how you can qualify for it.

What is loss of use coverage?

Loss of use coverage, which may also be referred to as temporary vehicle replacement coverage, will cover policyholders in the event that their vehicle needs to be replaced or repaired following a damage or loss. More specifically, loss of use coverage will temporarily pay for the cost of transportation while you are without your vehicle. These transportation costs could include public transit expenses or the cost of taking taxis or hiring a rental car. Loss of use coverage is an optional type of car insurance in Canada and can be added as a rider or endorsement to existing car insurance policies.

Understanding how loss of use coverage works

As mentioned, loss of use coverage can help pay for alternative transportation in the event that your car is damaged and you are unable to use it temporarily. Under this portion of your car insurance policy, your insurance provider can reimburse you for costs relating to rental vehicles, taxis or ride sharing, and public transportation. Loss of use coverage typically kicks in, if you have it, after you have filed a claim with your insurance company. Typically, after submitting your claim, your insurer will contact you to discuss the claim, as well as your loss of use coverage. They will explain your loss of use limit and likely recommend a rental car agency to contact if you wish to hire a rental vehicle. Please note that you will not be able to rent any vehicle you want under loss of use coverage. Rather, you will likely receive a vehicle that is most similar to the one involved in the claim. The only instance in which you might receive a completely different vehicle is if the rental agency is out of vehicles in the same category as your car.

Generally speaking, 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. This brings us to our next point which is how long loss of use coverage lasts. As with any type of insurance, loss of use coverage comes with certain limitations, such as a maximum coverage limit. Thus, the more expensive the vehicle or mode of transportation you select, the faster your loss of use coverage will be used up. Depending on the extent of the damage done to your vehicle, repairing it could take quite some time. Therefore, especially in situations where you are concerned about how long it will take to get your vehicle back or receive a new vehicle, choosing a less expensive vehicle replacement is the way to go. Ultimately, the factors that impact how much time your loss of use coverage is valid for include:

  • Your loss of use coverage limit
  • The time it takes for your claim to be settled (both for any applicable vehicle repairs to be completed and for the payout)
  • How much the alternative transportation you select costs

One last thing to note - loss of use coverage will cover you until your coverage limit has been reached or your claim is settled with the insurance company, whichever is sooner.

What to know about loss of use coverage

There are a few things that policyholders must know about loss of use coverage. They are as follows:

Insurance company approval

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 before requesting it be added to your policy.

Loss of use coverage has a limit

Loss of use coverage always has a limit. If you reach that limit, you will be responsible for paying the difference. This can add up quickly, especially if your claim takes a long time to settle.

Some expenses are not covered

Certain fees are not covered by loss of use coverage. This includes gas for your rental car, parking, etc. Contact BrokerLink for a complete list of expenses not covered by loss of use.

Your claim needs to be approved

Loss of use coverage is only valid if the claim is approved. If the damage to your car was the result of something not covered by your current auto insurance policy, you won’t be able to claim any expenses under the loss of use coverage portion of your insurance plan.

You may need to pay for expenses upfront

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.

Is loss of use coverage mandatory for car insurance?

Loss of use coverage is not mandatory in Canada. However, car insurance is generally, so you will still need to purchase a car insurance policy. Loss of use coverage is just not one of the coverage types that is required within the realm of car insurance. Mandatory car insurance coverage in Canada varies by province. However, it may include third party liability coverage, direct compensation - property damage coverage, uninsured automobile coverage, and accident benefits coverage. While loss of use coverage is not compulsory in Canada, it can help to significantly reduce the financial consequences of a claim, especially if public transportation is not an option and you could not otherwise afford the cost of a rental car.

How to qualify for loss of use coverage

Loss of use coverage is not available to all drivers in Canada. Generally, it is an endorsement that can be added if your policy already has collision coverage, comprehensive coverage, or all perils coverage:

Collision coverage

Collision coverage is a type of optional car insurance that reimburses policyholders if they end up in a car accident with another vehicle or a grounded object on the road. More specifically, this coverage pays for losses relating to the accident, such as vehicle repair bills, whether the policyholder was at fault for the accident or not. Collision coverage might be mandatory if you drive a financed or leased car.

Comprehensive coverage

Comprehensive coverage is also optional and it protects vehicles from damage caused by a wide range of non-collision-related incidents. As part of your comprehensive coverage, you must select certain perils to be protected against. Options often include fire, theft, vandalism, falling objects, and collision with an animal. In the event that damage occurs to your vehicle while it is parked and the damage is caused by any of the named perils on your policy, your insurer will cover you.

All perils coverage

Think of all perils coverage as a mix between comprehensive and collision coverage. It is designed to compensate policyholders for damage or losses caused by any peril, unless specifically listed as an exclusion in your policy. All perils insurance can also pay for damages if someone you live with, an employee, or a car mechanic damages or steals your car.

Please note that you do not need to add every type of optional car insurance coverage to your policy to be eligible for loss of use coverage. However, the way that loss of use coverage works is that it is limited to the number of perils or risks you are insured against. Therefore, if you only add collision coverage to your existing auto insurance policy and your vehicle gets stolen, you won’t be able to claim loss of use coverage unless your policy also featured comprehensive coverage with theft as a named peril.

What is not covered by loss of use coverage?

Loss of use coverage features several limitations and restrictions. First, the replacement vehicle you rent from a rental car agency, if you choose to go this route, will likely need to be similar in style, size, and price to your damaged vehicle. In other words, if you drive a minivan, you likely won’t be able to rent a sports car for the week. Next, if you are under 21 years of age, most rental car agencies will refuse to rent you a vehicle due to their strict age restrictions. However, in this case, if you still choose to add loss of use coverage to your policy, your insurer can compensate you for the cost of public transit or taxi fares while your vehicle is being repaired. Finally, loss of use coverage does not pay for all expenses relating to the loss of your vehicle. For example, do not expect to be reimbursed for the cost of gas or any extra rental car insurance you elect to purchase.

How much loss of use coverage should I add to my auto insurance policy?

The answer to this question varies from person to person as each driver’s needs are different. Factors like the type of car you drive and your claims history will all come into play. Therefore, we recommend contacting an insurance professional who can assess your circumstances and recommend an ideal coverage limit from there.

Factors impacting the cost of loss of use car insurance

Loss of use car insurance is paid for alongside the rest of your car insurance coverage. It is factored into your general auto insurance premium. When determining your car insurance premium, an insurance agent will consider many factors. Knowing what factors matter can be useful, which is why we have made the following list:

  • Where you live (and where you regularly commute)
  • Age
  • Model, make, and year of vehicle
  • Past claims
  • Average mileage
  • Driving experience
  • Driving record
  • Insurance history
  • Deductible amount
  • Regulatory bodies
  • How you use your vehicle
  • Gender

Mandatory car insurance coverage for drivers in Canada

As you now know, loss of use coverage is optional in Canada, but there are many types that are mandatory. Below is a quick breakdown of some types of compulsory auto insurance in Canada:

Third party liability coverage

Third party liability coverage compensates policyholders if they are found liable for an accident. In other words, if you cause a collision, your third party liability coverage can help pay for the cost of legal fees, medical expenses, repair bills, etc. Many provinces require drivers to take out a certain amount of third party liability coverage, like Ontario which requires drivers to hold a minimum of $200,000 in liability coverage at all times.

Accident benefits coverage

Accident benefits coverage exists to cover the cost of medical expenses if someone involved in a car accident requires medical attention. Even if you, the policyholder, were not the one requiring medical attention, accident benefits can still cover you. Specifically, it can cover medical expenses not already covered by health insurance, such as physical therapy or prescription medications.

Direct compensation - property damage coverage

Direct compensation - property damage coverage is the opposite of accident benefits in that it is solely focused on property damage-related expenses vs. medical expenses. Under this portion of your policy, if property damage, like a totalled car, results from a car accident that you were not at fault for, you can receive compensation from your insurer to cover the repair costs. For more information on what to do with a totalled car, contact BrokerLink.

Uninsured automobile coverage

Uninsured automobile coverage is the last type of mandatory coverage in Canada. It exists to protect policyholders if they find themselves in an accident with an uninsured or underinsured driver. It can also come in handy if you are the victim of a hit-and-run accident.

Tips to cut car insurance costs

No matter what kind of car insurance policy you buy - whether a standard one or one with optional coverage, like comprehensive, collision, or loss of use coverage - finding it at an affordable rate is important. Thankfully, the BrokerLink team specializes in competitive car insurance, which means we have all kinds of advice for ways to save money on auto insurance. Below is a list of some of our top money-saving tips for you to take advantage of:

Have a BrokerLink insurance broker shop around and compare rates

A pro tip for cutting car insurance costs is to contact an insurance broker. Insurance brokers know how to find the best insurance rates for their customers. They shop around, reviewing products from different insurance companies and comparing them, in order to find you the best possible coverage at the most affordable price. A broker can also offer more tips on how to save money on car insurance and inform you about a wide range of auto insurance discounts.


Select a higher car insurance policy deductibles

Increasing the deductible on your car insurance plan is a quick way to minimize how much you pay for car insurance. Therefore, if you want to cut costs, especially if you are adding optional coverage to your policy which can increase rates, selecting a higher deductible is a great option. Speak with an insurance broker about the financial impact of selecting a deductible of $750 or $1,000 instead of a lower one of $250 or $500.

Sign up for an approved driving course

Signing up for an approved defensive driving course or driver education course in your province can result in serious car insurance savings. Insurance companies recognize that completing such a course is likely to make you a safer driver, minimizing your odds of getting into an accident. As such, they may reward you with a discount on your auto insurance policy. Note that driving courses can result in discounts for both young or new drivers as well as experienced drivers.

Purchase more than one insurance product from the same insurance provider

Bundling insurance products is one of the most effective ways of cutting insurance costs. Many insurance companies offer discounts to customers who bundle policies. Note that bundling policies is when you buy more than one insurance product from the same provider at the same time. Not all insurance products are eligible for bundling. However, many insurers offer bundling on home, auto, and business insurance. You can even bundle two or more insurance products in the same category, like buying one car insurance policy for each vehicle in your household.

Keep your driving record clean

Another effective way of saving money on car insurance is by maintaining a clean driving record. A clean driving record is one that does not have any, or has a very minimal number, of infractions, traffic tickets, etc. The cleaner your record, the more responsible you are perceived to be by an insurance company. As a reward for your safe and responsible driving habits, an insurance company may offer you a cheaper rate.

Contact BrokerLink to learn more about loss of use coverage

Loss of use coverage is an important component of many car insurance policies in Canada. If you qualify for such coverage, we urge you to speak with a local insurance agent or broker about it. For example, if you contact BrokerLink, one of our auto insurance specialists would be pleased to discuss loss of use coverage in greater detail with you. They can explain how coverage works, if you qualify, and provide you with a quote so that you could understand how much your rates will change by adding loss of use to your policy. A BrokerLink insurance broker can also help with other car insurance-related tasks, like renewing car insurance. As auto insurance experts, we can also offer tips, like how to save money on car insurance, or answer questions like “How do you report a car accident?”. To get started, contact BrokerLink today. Our car insurance team can be reached by phone, email, or in person at over 200 BrokerLink locations in Canada.


Loss of use auto insurance FAQs

How much does loss of use coverage cost?

Loss of use coverage varies in price depending on where you live and how much of it you want to add to your policy, it can also vary based on the type of vehicle you drive.

Does loss of use coverage have a deductible?

No. Loss of use coverage is not subject to a deductible, however the reason in 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.

Can I purchase loss of use coverage for a business vehicle?

Yes. In fact, 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.

If you have any questions, contact one of our local branches.