Do I need rental car insurance?

The rental car industry in Canada is massive, with revenue growth over the past five years reaching an estimated $6.3 billion in 2024. Whether you're renting a car for a weekend getaway with your closest friends, travelling for business for a week, or needing a vehicle while yours is in the repair shop, understanding rental car insurance is essential. Gaps in insurance coverage can lead to hefty out-of-pocket expenses. Still, most Canadians are unclear about what the regulations are when it comes to insuring a vehicle you're borrowing for a certain period.

Luckily, BrokerLink has you covered. Keep reading to learn more about rental car insurance in Canada, like what it covers, where you can buy it from, and whether you need it to rent a car.

What rental car insurance typically covers

When you rent a car from a car rental company, it's not uncommon for them to offer you multiple insurance options. Knowing what each of these options is and how they protect you can help you make the right choice in terms of coverage and prevent you from paying unnecessary expenses. We will review different coverages below:

Collision damage waiver

Think of a collision damage waiver as a combination of collision and comprehensive coverage in car insurance. Adding this waiver to your car rental insurance coverage can add an extra $30 per day to your costs. But without it, you may be liable for repair costs, administrative fees, and loss-of-use charges, even if you're not at fault for the damages.

Liability insurance

Third-party liability insurance coverage protects drivers if they cause bodily injuries or property damage to a third party while operating a rental car. Most rental car companies offer $200,000 in coverage, which is the bare minimum. Given how expensive liability claims can get, it's recommended that you purchase at least $1 or $2 million in liability insurance.

Personal accident insurance

You can think of this rental car coverage as a form of accident benefits coverage. Personal accident insurance coverage covers you and your passengers if you are injured in a vehicle accident, including costs associated with accidental death and dismemberment, accidental medical expenses, and ambulance fees.

Personal effects coverage

Personal effects coverage covers the personal belongings in your rental vehicle if they are lost, damaged, or stolen, and can be added to your accident insurance.

Roadside assistance

Roadside assistance is an optional rental car insurance policy that will cover the cost of flat tires, dead batteries, towing, fuel top-ups, and other costs if you experience car trouble while travelling. This can be especially helpful if you're travelling in a rural or unfamiliar area.

What your existing personal auto insurance policy includes

Many Canadians already have some types of rental car insurance coverage through their personal auto policy. For example, in Ontario, if your personal auto policy includes an OPCF 27 endorsement (Legal Liability for Damage to Non-Owned Automobiles), it may cover damage to rental cars within Canada and the U.S.

However, there are certain limitations and exclusions to this endorsement, including:

• If you are renting a vehicle outside of North America, this endorsement is not valid.

• Coverage is often restricted to specific vehicle types. For example, high-end or luxury vehicles may not be included. You'll need to ask your insurance provider for clarification.

• Just because you have a valid car insurance policy already, doesn't mean you're automatically covered for rental vehicles. This will vary between plans and insurance companies.

How credit card coverage works (and where it falls short)

Most credit card companies offer some form of rental car insurance coverage. However, there are usually strings attached. For example, you'll only receive the rental car coverage if you purchase the rental using your specific credit card. Other limitations and exclusions you need to be aware of include:

• Your rental car coverage from your credit card company maxes out after 31 days.

• The credit card provider will only cover rental cars up to a certain Manufacturer's Suggested Retail Price (MSRP).

• Coverage does not apply if you are driving under the influence of drugs or alcohol.

• Certain vehicle models, like trucks and luxury cars, are not covered under credit card rental car insurance.

• Your credit card must be in good standing.

• You cannot carry illegal goods in your rental car.

• Your rental car insurance may not be valid if you’re using the rental vehicle for commercial purposes.

Credit card rental car insurance options

Refer to the table below for a side‑by‑side look at credit card rental car insurance options:

Do you need rental insurance when travelling outside Canada?

If you're planning to use a rental car outside of Canada, whether it be the U.S., Mexico, or overseas, it's important to understand how your existing personal car insurance policy applies. The following takes a closer look at how your personal insurance applies to international car rentals:

Personal car insurance may be limited

Many Canadian personal auto insurance policies, including those with OPCF 27 (Ontario) or SEF 27 (Alberta) endorsement, only provide rental car insurance when you're in Canada or the U.S. Once you cross the border into another country, this coverage will cease. This means that if you're renting a car in Asia, Europe, or South America, you'll likely need to purchase your own rental car insurance from a local rental car agency or look to your credit card to see if you have car insurance coverage under your card.

Remember, however, that credit card companies have limitations on how your rental car insurance will work. For example, if you don't use your specific credit card to pay for the rental vehicle in full, or fail to decline the collision damage waiver from the rental car company, you may not have protection.

Long car rental claims processes

In the event you do get involved in a car accident abroad or your rental car is stolen, know that the claims process may take longer than it does within Canada. For example, you may need to pay large repair costs upfront and wait weeks or months for any reimbursements that apply. To avoid surprises while you're away, always confirm with your insurance provider and credit card company what rental insurance you have and what the limitations are. Further, purchasing additional coverage from rental car agencies may be the best option for your peace of mind.

What happens if you decline rental car coverage

As auto repair inflation in Canada hit 2.7% in 2024, even minor damage can lead to high out-of-pocket costs. Declining a rental company's coverage may help you save money upfront, but it can lead to several financial consequences if you are involved in a collision. If you don’t purchase the rental company’s insurance, be aware that:

The risk of saying no to collision damage Waivers

Remember, collision damage waivers shift financial liability for any rental car damage from you to the rental agency. Without this rental car insurance policy in place, you'd be responsible for paying all expenses out of pocket.

Hypothetical example

Let's say you decline to purchase rental car insurance from the rental car agencies because you assume your credit card company or your personal car insurance policy has you covered. Now, imagine you get into a collision and damage the rental car. Because your personal car insurance and credit card company aren't covering you, you'll need to pay for the repairs and other expenses on your own.

When your personal auto insurance fails

Remember, your personal auto insurance policy and credit card may be limited to Canada and the U.S. You may also be limited on the type of vehicle you rent and how you pay for it. Without following the terms outlined by your card company and provider, you could be on the hook for expenses with no reimbursements.

Quick checklist: do you need extra coverage?

Buying rental car insurance isn't mandatory. But before you decline coverage, run through this rapid checklist below:

• Are you using a credit card that includes rental car insurance?

• Does your personal auto policy include the OPCF/SEF 27 endorsement or something similar?

• Are you renting a vehicle type covered by your existing auto insurance?

• Are you travelling within Canada or the U.S.?

• Are you comfortable paying out-of-pocket and possibly waiting for reimbursement?

If you answered no to any of the questions above, you should consider purchasing rental car insurance from a rental car company.

Common rental car insurance myths debunked

Rental car insurance coverage can be confusing. We're here to debunk common misconceptions that could lead to financial consequences in the future:

Myth: “My credit card always covers me.”

False. Your cards will often have exclusions on the type of vehicle you rent and its market value.

Myth: “If I return the car with a minor scratch, they won’t charge me.”

False. Rental car companies take damage to their vehicles seriously. Even a minor scratch to the rental car can lead to repair costs.

Myth: “My spouse is automatically covered.”

Not always. Some car rental agreements will only provide coverage to the primary renter. You may need to pay extra to add a secondary driver.

How BrokerLink can help

Rental car insurance in Canada isn’t a one-size-fits-all solution. The right decision depends on your personal auto coverage, credit cards, where you're travelling to, and overall risk tolerance.

For personalized advice, BrokerLink brokers are here to help. Whether you're shopping for car insurance or have further questions about rental insurance, know that our experienced team has got you covered.

To work with us, you can contact us directly over the phone or by email. Alternatively, you can use our free online quote tool for a customized insurance quote right on your device!

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Car rental FAQs

What are the requirements for renting a car in Ontario?

To rent a car in Ontario, you must be at least 21 years old. Note that the rental car company may charge you a young driver fee and limit the model of vehicle you can rent.

Can I take a rental car from Canada to the U.S.?

Yes, as long as there is nothing specifically outlined in your rental car agreement, you should be able to drive a rental car from Canada to the U.S.

Is rental car insurance mandatory?

No, car rental insurance is not mandatory. However, without it, you could face expensive auto insurance claims that significantly impact your finances.

How much does rental car insurance cost?

The cost of rental car insurance varies between providers. It depends on whether you purchase it directly from the rental car agency, from an insurance provider, or a credit card company. When buying rental car insurance directly from a rental car company, it can cost up to $65 per day on top of other rental car fees.

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