Loss of Use Coverage: Protecting Your Transportation Needs After an Accident or Theft
When unexpected events like accidents or theft leave your vehicle temporarily unavailable, Loss of Use Coverage (also known as Transportation Replacement) can be a lifesaver. This optional coverage offers protection for transportation expenses, such as a rental vehicle, during the period when your insured vehicle is out of commission. However, many insurance companies are reporting a gap in coverage in regards to Transportation Replacement coverage. In this blog, we’ll explore the benefits of a Transportation Replacement policy, the average lead time to repair your vehicle and typical rental car costs to illustrate the potential financial impact of being underinsured.
How Loss of Use Coverage Works:
If your insured vehicle suffers damage and requires repairs or if it’s stolen, Loss of Use Coverage (OPCF 20) can help cover the costs associated with alternative transportation. This coverage typically includes expenses related to renting a vehicle, utilizing public transportation, or any other means of transportation required to replace the use of your insured vehicle. Loss of Use Coverage, is not automatically included in standard auto insurance policies. It must be added separately, along with an additional premium payment.
Current Issue leading to Gaps in Coverage: Long Lead Times and High Rental Car Costs in Ontario
Insurance companies are reporting that many policyholders are facing challenges due to delays in getting parts and repairing vehicles. A common issue is that people are carrying a lower limit on their Loss of Use coverage than what is needed to cover the actual costs. Most clients carry a limit of $1,500 total for their policy. Since repairs are taking upwards of three weeks, and in some cases up to six to eight weeks due to parts shortages, it is becoming evident that a higher limit is necessary.
In Ontario, the cost of renting a car can vary based on several factors, such as rental duration, vehicle type, rental agency, and additional services selected. Here’s an approximate price range for common car rental classes in Ontario:
- Economy/Compact Cars: Approximately $30-$60 CAD per day or $200-$400 CAD per week.
- Mid-size Cars: Approximately $40-$80 CAD per day or $250-$500 CAD per week.
- Full-size Cars: Approximately $50-$100 CAD per day or $300-$600 CAD per week.
- SUVs: Approximately $60-$120 CAD per day or $400-$800 CAD per week.
- Luxury Cars: Approximately $100-$300 CAD per day or $700-$2,000 CAD per week.
*Please note that these prices are estimates and can vary based on factors.
Therefore, a typical limit of $1500 insurance would cover less than 2 weeks of a rental vehicles’ costs for a standard SUV. Beyond the $1500, the car owner is responsible for any costs over that limit.
The gap in coverage becomes even more evident based on the current long lead times for replacement parts in Ontario. For more complex or major repairs, such as engine or transmission work, suspension repairs, or bodywork, the wait time may take several weeks and even months. During busy periods, such as winter months when many people prepare their cars for winter conditions, or after accidents or storms, repair shops may experience higher demand and longer wait times.
Loss of Use Coverage offers invaluable protection when your insured vehicle is temporarily unavailable, but only if the limit is high enough to cover your needs. Can you afford to pay for a rental vehicle indefinitely while subject to Ontario’s current long auto repair lead times? Some insurance companies can offer higher limits, such as $2,500 or $3,000, which can better protect you during extended repair periods. Talk to your Merit broker today about potentially adding or increasing Loss of Use Coverage.
