How to Spend Money Wisely » Insurance

What Is Rental Car Insurance and Do You Need It?

What Is Rental Car Insurance and Do You Need It?

When travelling for work or vacation, you may decide that the best way to get around is by renting a car. But finding the right vehicle for your trip isn’t the only decision you’ll need to make. Another important consideration is car rental insurance. But how exactly does it work, and how much will you need? In this article, I’ll explain how rental car insurance works and help you figure out what coverage you need.

What Is Rental Car Insurance?

There are no less than four types of rental car insurance that can protect you when you rent a vehicle. You can purchase coverage directly from the rental car company, or from another provider. You may even have existing coverage through your credit card or auto insurer.

Let’s take a look at how each type of coverage works:

Loss Damage Waiver (LDW)& Collision Damage Waiver (CDW)

A Loss & Collision Damage Waiver is not an actual insurance policy. You are paying for the car rental agency to waive its right to come after you for loss or damages in the event of an accident, fire, theft etc. It can be expensive, and you may already be covered through your credit card or regular auto insurance policy. For this reason, always check to see if you have existing coverage so that you don’t pay twice. No matter how you purchase LDW/CDW, always read the fine print so that you understand the limits and what the coverage entails.

Liability Insurance (LI)

If you are at fault in a collision, you may be held liable for the medical costs of the injured parties and any damage to their vehicle. You could also be sued for millions of dollars. This is why you need liability protection of at least $1- $2 million. It will cover costs from the accident, including damage to the other vehicle and any medical expenses incurred by the other party. If your regular car insurance policy includes an OPCF27 endorsement, it may cover you when you drive rental vehicles as well as your own. I’ll cover OPCF27 in more detail a bit later.

Personal Accident Insurance (PAI)

Unfortunately, liability insurance won’t cover the medical bills for you or your passengers. This is what Personal Accident Insurance is for. It may even cover lump-sum payouts to you and your passengers in the case of death or accidental dismemberment. The coverage is not required, but if you purchase it, it will provide some added peace of mind. If your personal auto insurance coverage includes a clause that carries over to rental vehicles (OPCF27), then you may already be covered.

Personal Effects Coverage (PEC)

Personal Effects Coverage protects your personal belongings or valuables against loss or damage due to accident, theft, or fire. In many cases, this will be covered by your home insurance policy, so you may not need to buy it when you rent a car. Keep in mind, there will likely be a deductible of at least $500, meaning that items of lesser value may not be worth protecting. Check with your home insurance company to see if your personal belongings are covered when you rent a car.

Where Can I Buy Rental Car Insurance?

You can purchase rental car insurance directly from the rental agency when you pick up your vehicle, but you may end up paying a lot more than you need to. Not only are their plans very expensive, but you may also be doubling up on coverage you already have in place.

For example, many travel credit cards have rental car insurance protection, and you may be covered through your car insurance policy. If it’s not already included, you can probably purchase the coverage separately. Most home insurance policies will cover your personal property, even when it’s outside your home.

For these reasons, it’s always good to find out what coverage you have in place before arriving at the rental counter. This way, you won’t be pressured into purchasing something you don’t need.

Can I Get Rental Car Coverage through my Auto Insurer?

Your car insurance policy may cover you for liability and personal accident insurance, but only if it carries something called an OPCF27 endorsement. This makes the policy transferable to a rental car. The endorsement will specify the types of vehicles that are covered, and there may be some other variations from your normal policy, ie. deductible amount. Find out if you have an OPCF27 endorsement or if it can be added, as it could save you from paying an expensive collision or loss damage waiver from the rental agency.

Does My Credit Card Cover Rental Car Insurance?

You can save a lot of money if your credit card offers car rental protection. In fact, many premium cards today come with auto collision and loss coverage. To qualify, you will need to charge the full price of the rental car to the card.

The coverage will vary depending on the credit card you’re using, so make sure you read the fine print. In Canada, the BMO World Elite Mastercard is one of the top choices for car rental insurance, and it’s the card I use whenever I rent a car. Below is a summary of the insurance coverage included with this card, including three types of car rental protection.

BMO World Elite Mastercard Features

  • Introductory offer of 40,000 BMO Rewards Points
  • 99% Purchase interest rate
  • $150 annual fee (first year waived)
  • Promotional offer of 40,000
  • Car rental collision damage waiver
  • Car rental accidental death or dismemberment insurance
  • Car rental theft or damage to personal items
  • Emergency travel medical insurance
  • Trip cancellation insurance
  • Trip interruption or delay and flight delay benefits
  • Coverage for lost, damaged, or stolen luggage

For a full list of features, check out my BMO World Elite Review.

When to Purchase Insurance at the Rental Car Counter

The most important thing is to always be properly insured when you rent a car. With this in mind, here are some situations when it makes perfect sense to purchase coverage directly from the car rental company:

  • You don’t have coverage through your auto insurer (no OPCF27 endorsement)
  • You’re travelling outside Canada or the U.S.
  • Your home insurance policy won’t cover loss with a rental car
  • You don’t have car rental insurance coverage through your credit card
  • You can’t afford to make a claim through your existing car insurance policy
  • You’re renting a car for work-related travel
  • You’re renting a very expensive specialty vehicle (sports car/luxury vehicle)

When to Avoid Buying Rental Car Insurance from The Rental Agency

If you have an OPCF27 endorsement with your car insurance policy, a credit card with car rental protection and your home insurance will protect your belongings against loss in a rental vehicle, then chances are, you don’t need the rental car insurance offered by the rental company. Of course, make sure you’re comfortable with the limits of your existing coverage.

Other Ways to Save Money When Renting a Car

Car rental insurance isn’t the only thing driving up car rental costs these days. Here are some other ways you can save money when renting a car.

Choose the Economy Car

It can be tempting to splurge on a luxurious ride when renting, but doing so can more than double the price of your rental. Most car rental companies offer economy cars at a reasonable price. If you don’t need the extra space or horsepower, it will save you money.

Book Away from the Airport

Airports have no shortage of car rental agencies onsite, waiting to serve weary travellers, but the convenience comes at a price. If you can rent a car away from the airport, you will save money. Of course, you may have to factor in other transportation costs, such as a taxi or airport shuttle.

Shop for Discounts

The car rental business is competitive, which means that most companies will offer discounts regularly. Check online for coupons before you book. If you have a travel credit card, it may include an affiliation with a specific rental car company, which is usually good for a 10% or 15% discount.

Compare Prices Online

Before booking your car rental directly through the agent, compare prices online. You may get the best price by booking through a 3rd party, such as Costco, or a travel fare aggregator like Booking, Hotwire, or Kayak.

Join a Loyalty Program

If you stick to the same car rental agency and join their loyalty program, you can earn points which will turn into discounts, saving you money over the long run.

Final Thoughts on Rental Car Insurance

Rental car insurance can seem complicated, given that there are four different types of protection and a number of places from which to purchase coverage. In my opinion, your best bet is to try and get an OPCF27 endorsement through your car insurance policy, get a credit card with rental car insurance coverage, and make sure your home insurance policy covers personal belongings when you rent a car.

With these three layers of protection, you likely don’t need to purchase insurance from the rental agency, and you won’t feel pressured when they offer it to you at the counter. Of course, always make sure you understand the limits of the coverage you have, and know whether it’s enough to protect you should a worst-case scenario occur.


  1. G. Dansereau

    Hello Mr. Drake,
    Very good article. Clear and precise. Regarding liability insurance, may I add one additional information? Unlike the laws in Canada and the United States, car rental companies in Europe (among others …) are required to include liability insurance in their contract. This feature is certainly not negligible given the potential costs abroad.
    Best regards.

Leave a reply

Your email address will not be published. Required fields are marked*