Learn what insurance Canadian lessors require on leased equipment: coverage types, limits, loss payee wording, and how to avoid costly gaps.
Short answer: If you lease equipment in Canada, you’re almost always required to carry property insurance on the equipment and liability insurance for how you use it. The policy must usually name the lessor as loss payee on property coverage, sometimes as additional insured on liability, and you have to prove coverage with a certificate before the lessor releases funds or equipment.
Key point: For leased equipment, insurance isn’t optional “nice-to-have” — it’s a contract requirement and a risk management tool for both you and the lessor.
Most Canadian leasing companies state it bluntly in their FAQs: insurance is required on all leased equipment to protect both the leasing company and the lessee.
Why lessors care so much:
Why you should care even more:
For Mehmi-style equipment leases, the rule of thumb is simple: if it moves, lifts, cooks, scans, cuts, or hauls for your business, it needs the right insurance behind it before funding.
Key point: Most leasing insurance requirements boil down to two buckets: property coverage on the equipment itself, and liability coverage for what the equipment can do to other people or property.
This protects the equipment itself against things like:
Canadian rental and leasing contracts usually require the lessee to obtain “all risk” property insurance for the full value of the leased equipment, often on a replacement cost basis.
For trucks and trailers, property coverage shows up as physical damage insurance on your commercial auto or fleet policy. It covers repair or replacement of the truck and trailer if they’re damaged in a collision, stolen, or affected by other covered perils.
With Mehmi’s truck and trailer financing and heavy equipment financing, proof of this coverage is typically required before the unit is delivered or funds are released.
This protects you if the use of the equipment injures someone or damages their property.
Common forms:
Government and corporate leases often spell out minimum liability limits in the contract (e.g., $2M CGL, $2M auto liability) and may require that the lessor or project owner is named as additional insured on your policy.
For Mehmi clients, this is where transportation expertise and sector-specific guidelines come in — the team will tell you exactly what limits and wordings are needed for your trucks, equipment, or specialty assets.
Key point: It’s not enough to “have insurance.” Your policy has to name the lessor correctly — usually as loss payee on property coverage, and sometimes additional insured on liability.
A loss payee is a party with a financial interest in the property (like a lender or lessor) who gets paid first if there’s a covered loss.
Canadian brokers describe it this way: when a third party has ownership or security interest in an item (like leased equipment), they’re added as loss payee under the policy. The insurer must then include them on cheques for insured losses and notify them of changes or cancellations.
For leased equipment, that usually means:
So if a machine is written off in a fire, the cheque flows in a way that protects the lessor’s interest first, then any remaining funds are available for you to replace or upgrade.
Additional insured status extends liability coverage to another party for claims arising from your operations.
Key difference:
Many Mehmi-supported leases ask you to:
Your broker can add both with specific endorsements.
Key point: Exact wording varies by lessor and province, but most Canadian equipment leases ask for some version of the same insurance package.
Here’s what you can reasonably expect on a Mehmi-style equipment lease:
For most non-road equipment (machinery, construction gear, restaurant equipment, medical devices, etc.):
For road-licensed units (trucks, trailers, vocational vehicles):
Most lessors will also require:
On Mehmi deals, your advisor will normally tell you exactly what to ask your broker for, then funding only happens after the correct COI is on file.
Key point: You almost always have a choice between using your own commercial insurance policy or buying “forced-placed” or in-program coverage through the lessor. Using your own broker is usually cheaper and more flexible.
Many rental and leasing companies say they can “include insurance with your lease for a nominal fee.” That’s useful if you truly can’t arrange coverage elsewhere — but there are tradeoffs.
Pros:
Cons:
Pros:
Cons:
Mehmi’s general stance is: use your broker whenever possible. That keeps your fleet or equipment strategy aligned with your overall risk picture, whether you’re financing through equipment leases, a revolving equipment line of credit, or bigger projects supported by asset based lending.
Key point: For most Canadian businesses, insurance premiums on leased equipment are deductible expenses, and GST/HST on those premiums may generate input tax credits (ITCs) — but provincial premium taxes and some PST elements remain a real cost.
CRA states that you can deduct ordinary commercial insurance premiums on buildings, machinery and equipment used in your business.
That normally includes:
Insurance on motor vehicles is deducted under vehicle expenses; equipment-related insurance is deducted as an operating expense or part of leasing costs.
On top of premiums, HST (or GST) may apply to parts of your insurance cost:
However, some provinces (like Ontario) charge an insurance premium tax or provincial sales tax on certain insurance lines, especially auto and property. Those amounts are not part of HST and do not generate ITCs — they remain a cost to the insured.
When you compare total cost of a lease through Mehmi vs alternative lenders, don’t ignore insurance:
A Mehmi advisor can factor realistic insurance assumptions into your equipment financing or truck repair financing plan so you’re comparing apples to apples.
Key point: Most insurance problems with leased equipment aren’t about clever fine print — they’re about simple oversights: wrong name, wrong limits, or letting coverage lapse.
Here are the big ones we see in the Canadian market:
Result: equipment isn’t explicitly scheduled or valued on the policy. At claim time, you may be under-insured or uninsured, and the lessor is furious.
If your lessor isn’t named as loss payee, the insurer may pay a property claim only to you as the named insured. That sounds nice, until:
Canadian law firms highlight that loss payee protection is derivative of the insured’s coverage — if you void coverage, the loss payee can be left unprotected too. That’s one more reason to keep the policy clean and current.
Trying to park a leased skid steer under your home or personal auto policy is a non-starter.
If the asset is part of your revenue engine, make sure your broker treats it that way.
If you insure a $500,000 piece of equipment under a policy that effectively assumes you’ll carry full value but you only list $250,000, a co-insurance penalty could sharply reduce your payout after a partial loss.
In plain language: being half-insured can feel worse than being uninsured, because you’ve paid premiums but still can’t fund a proper repair or replacement.
If you miss a payment or forget to renew:
This is an easy one to avoid: line up renewal dates, pre-authorized payments, and a broker who understands your leasing portfolio.
Key point: A 15-minute call with your broker before you sign can prevent months of pain later. Use a checklist.
Before Mehmi (or any lessor) funds your equipment, you should know the answers to:
Once you have this picture, your Mehmi advisor can plug the numbers into their calculator and overall equipment financing plan so you know the true monthly cost of owning or leasing that piece of gear — including insurance.
Background
A mid-size restaurant group in the GTA signed a 5-year lease through a non-bank funder for:
Total financed amount: about $250,000 plus HST.
They already had a commercial property policy for the building and contents, so the owner assumed they were covered. The lessor’s requirements said:
What went wrong
The owner emailed the lease schedule to their broker, but no one followed up. The policy:
Six months later, a kitchen fire seriously damaged a line of equipment. The insurer adjusted the loss under the generic contents limit, which was too low. After depreciation and co-insurance issues, the payout was not enough to:
The lessor insisted on full payments because the contract clearly required proper insurance naming them as loss payee.
How restructuring and better insurance fixed it
When the group approached Mehmi about financing a second location, they were honest about this history. Mehmi worked with:
For the new project:
Result
The owner now has:
His comment afterward:
“The insurance was a smaller cost than I thought. The expensive part was the year I pretended it didn’t matter.”
1. Is insurance always required on leased equipment in Canada?
In practice, yes. Canadian leasing companies almost always require insurance on all leased equipment to protect both the lessor’s and lessee’s interests. Your lease agreement will spell out the minimum property and liability coverage needed, and funding is typically conditional on proof of that coverage.
2. What types of insurance are usually required for an equipment lease?
Most leases require:
Your lessor may also require specific endorsements, like naming them as loss payee and additional insured.
3. Why does my lease say the lessor must be “loss payee” on my policy?
Because the lessor owns or finances the equipment, they have a financial interest in it. Canadian insurers and brokers note that loss payee clauses ensure the lender or lessor is included on any property claim payment and notified about policy changes. That protects them (and indirectly you) from a scenario where equipment is written off but the lender is left unpaid.
4. Are insurance premiums on leased equipment tax-deductible in Canada?
Yes. CRA says you can deduct ordinary commercial insurance premiums on buildings, machinery, and equipment used in your business. If you’re registered for GST/HST and the insurance is for your commercial activities, you may also claim input tax credits (ITCs) on the GST/HST portion of the premium (but not on provincial premium taxes or certain PST amounts).
5. Can I rely on my personal insurance policy to cover leased business equipment?
Generally, no. Personal property or auto policies typically exclude commercial use, and lease agreements usually require commercial insurance with specific wording and limits. Using personal coverage for leased business assets is a common mistake that can leave you uninsured at claim time and in default under the lease.
6. How do I make sure my insurance satisfies a Mehmi equipment lease?
Before you sign or take delivery, share the lease’s insurance section with your broker and confirm:
Then have your broker send a certificate of insurance directly to Mehmi that matches the lease requirements. Mehmi’s team can also coordinate with your broker if you’re using equipment financing, a vendor program, or more complex structures like asset based lending and refinancing or sales leaseback.
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