Insurance requirements for leased equipment in Canada
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.
Why leased equipment needs its own insurance plan
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:
- They own the asset on paper during the lease.
- If it’s stolen, burned, or written off and there’s no insurance, the lessor is stuck chasing you personally.
- Regulators and funders also expect lessors to have robust risk controls in place.
Why you should care even more:
- Without proper coverage, you could owe lease payments on destroyed equipment you can’t use.
- A single loss can derail cash flow just when the equipment was supposed to help you grow.
- Insurance premiums are typically deductible business expenses for buildings, machinery, and equipment used in your business.
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.
The two big coverage buckets: property and liability
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.
1. Property insurance (physical damage)
This protects the equipment itself against things like:
- Fire, theft, vandalism
- Collision or overturn (for mobile gear and vehicles)
- Water or weather damage (subject to policy specifics)
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.
2. Liability insurance
This protects you if the use of the equipment injures someone or damages their property.
Common forms:
- Commercial general liability (CGL) – for injuries or property damage arising from your operations (e.g., someone is injured near your machinery, or you damage a client’s property with your equipment).
- Commercial auto liability – mandatory for trucks and many mobile units that are road-licensed; most provinces require at least $1 million liability for commercial trucks, and many contracts insist on $2 million or more.
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.
Loss payee vs additional insured: what your policy must say
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.
Loss payee
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:
- Your business is the named insured.
- The leasing company (or funding partner) is listed as loss payee on the property/physical damage section.
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
Additional insured status extends liability coverage to another party for claims arising from your operations.
- A landlord might be additional insured on your CGL for incidents at your location.
- A project owner or lessor might be additional insured for claims linked to the leased equipment or project site.
Key difference:
- Loss payee → property claim money (who gets the cheque).
- Additional insured → liability protection (who’s covered if someone sues).
Many Mehmi-supported leases ask you to:
- Name the funder as loss payee on the equipment coverage; and
- Name both the funder and sometimes the vendor or project owner as additional insureds on CGL or auto liability, where appropriate.
Your broker can add both with specific endorsements.
Typical insurance requirements you’ll see in a Canadian lease
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:
Core property requirements
For most non-road equipment (machinery, construction gear, restaurant equipment, medical devices, etc.):
- All-risks or “broad form” commercial property coverage
- Coverage limit at full replacement cost (or at least the financed amount)
- Deductible within an acceptable band (often $1,000–$5,000; larger for big fleets)
- Lessor/funder named as loss payee
For road-licensed units (trucks, trailers, vocational vehicles):
- Physical damage coverage on each vehicle
- Stated amount or replacement cost wording that covers at least the value in your truck and trailer financing agreement
- Loss payable to the financing company (same idea as loss payee)
Core liability requirements
- Commercial general liability (CGL), often minimum $2 million per occurrence for many B2B leases and construction/hospitality projects.
- Commercial auto liability for trucks and trailers — Canadian carriers are typically told to carry at least $1 million, but $2 million is standard for many shippers and leasing contracts.
- Lessor, landlord, or project owner listed as additional insured where required by contract.
Administrative requirements
Most lessors will also require:
- A certificate of insurance (COI) from your broker confirming coverage, limits, the equipment description, and the loss payee/additional insured wording.
- A promise that you won’t cancel or materially change the policy without giving the lessor notice (often 30 days).
- Updated certificates when:
- Policies renew
- You add or remove leased units
- You change insurers
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.
Who arranges insurance — the lessor or your own broker?
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.
Using your own policy (recommended in most cases)
Pros:
- Often cheaper than forced-placed coverage over the full term.
- You control the deductible, insurer choice, and bundling with other assets.
- Easier to keep all business insurance coordinated (property, liability, vehicles).
Cons:
- A bit more work: you must coordinate with your broker and provide certificates on time.
- If you let coverage lapse, the lease usually treats this as default, and the lessor may add their own insurance at a higher cost.
Using lessor-provided or “forced-placed” coverage
Pros:
- Fast and hands-off — the lessor arranges it.
- No need to coordinate with your own broker upfront.
Cons:
- Often more expensive per dollar of coverage.
- Limited flexibility on deductible and claims handling.
- Coverage may only protect the lessor’s interest; you may not be fully covered for business interruption or other knock-on losses.
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.
Tax treatment: are insurance premiums deductible or recoverable?
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.
Deductibility of premiums
CRA states that you can deduct ordinary commercial insurance premiums on buildings, machinery and equipment used in your business.
That normally includes:
- Property insurance on leased equipment
- Physical damage premiums on trucks and trailers
- Liability premiums needed to operate your business
Insurance on motor vehicles is deducted under vehicle expenses; equipment-related insurance is deducted as an operating expense or part of leasing costs.
GST/HST and input tax credits
On top of premiums, HST (or GST) may apply to parts of your insurance cost:
- If you are registered for GST/HST and the insurance is for use in your commercial activities, you can usually claim ITCs for the GST/HST portion of the premium.
- You can only claim ITCs on the portion of the insurance premium related to your taxable business use, not personal use.
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.
Why this matters for leasing
When you compare total cost of a lease through Mehmi vs alternative lenders, don’t ignore insurance:
- Premiums are a real cash cost but often tax-deductible.
- If you’re fully taxable, much of the HST on premiums may come back as ITCs.
- Under-insuring to save a few dollars can backfire badly if a loss isn’t fully covered.
A Mehmi advisor can factor realistic insurance assumptions into your equipment financing or truck repair financing plan so you’re comparing apples to apples.
Common insurance mistakes that cause pain at claim time
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:
1. Policy not updated to reflect leased equipment
- New excavator, oven, or server stack gets leased.
- Lease is signed, equipment is delivered.
- Nobody tells the broker.
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.
2. Lessor not shown as loss payee
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:
- The lessor still expects its money.
- The cheque doesn’t fully reflect the lease obligation.
- You’re left juggling replacement costs and lease payouts.
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.
3. Using personal insurance for commercial equipment
Trying to park a leased skid steer under your home or personal auto policy is a non-starter.
- Personal policies often exclude commercial use.
- Leases usually require commercial coverage with business use and specific wordings.
If the asset is part of your revenue engine, make sure your broker treats it that way.
4. Co-insurance and low limits
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.
5. Letting coverage lapse mid-term
If you miss a payment or forget to renew:
- The insurer may cancel or suspend coverage.
- The lessor usually has the right to force-place insurance at your cost, treat this as default, or both.
This is an easy one to avoid: line up renewal dates, pre-authorized payments, and a broker who understands your leasing portfolio.
Practical checklist before your equipment lease funds
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:
- What kind of equipment is this, and how will we use it?
- Stationary (e.g., kitchen, manufacturing line) vs mobile (e.g., trucks, cranes).
- On your own premises only, or at client sites / job sites?
- What are the lessor’s exact insurance requirements?
- Property/physical damage coverage, limits, and deductible range.
- CGL and auto liability minimums.
- Required wordings for loss payee and additional insured.
- Is my current policy set up to handle this?
- Do we need new schedules, endorsements, or a new insurer?
- Can we add this easily to an existing fleet or property package?
- What will the actual premium impact be?
- Monthly or annual premium.
- Any financing options for premiums if cash is tight.
- Are there industry-specific extras to consider?
- Cargo, reefer breakdown, or downtime coverage in trucking.
- Business interruption insurance for manufacturing or hospitality.
- Professional liability if the equipment is used in regulated settings (e.g., healthcare, labs).
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.
Anonymous case study: a restaurant’s costly insurance blind spot
Background
A mid-size restaurant group in the GTA signed a 5-year lease through a non-bank funder for:
- A new kitchen line (ovens, fryers, refrigeration)
- A point-of-sale (POS) and back-office system
- Some specialized bar equipment
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:
- Full replacement cost coverage on all leased equipment
- Lessor named as loss payee
- Minimum $2M CGL, additional insured wording for the lessor
What went wrong
The owner emailed the lease schedule to their broker, but no one followed up. The policy:
- Listed “contents” at a generic value, never updated for the new equipment
- Did not list the lessor as loss payee
- Had older CGL wording with no mention of additional insureds
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:
- Fully replace the damaged units, and
- Keep up with the remaining lease obligation on time.
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:
- A new broker who properly scheduled the leased equipment at full replacement cost and added the lessor as loss payee.
- The owner’s accountant to cleanly deduct the new premiums and structure coverage so HST on premiums would be recoverable as ITCs where applicable.
- The existing lessor to refinance the remaining lease via a refinancing or sales leaseback style structure, smoothing payments over a longer term.
For the new project:
- The restaurant used Rent Try Buy hospitality for some front-of-house equipment, with clearer end-of-term options.
- Insurance requirements were confirmed in writing with the broker before any gear was delivered.
Result
The owner now has:
- Clean, compliant insurance on all leased equipment
- A clearer understanding of loss payee and additional insured wording
- Two locations financed through a mix of equipment leases and working capital loan support — with insurance baked into the business plan, not treated as an afterthought
His comment afterward:
“The insurance was a smaller cost than I thought. The expensive part was the year I pretended it didn’t matter.”
FAQ: Insurance requirements for leased equipment in Canada
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:
- Property or physical damage coverage on the equipment itself (all-risk or broad form, often replacement cost).
- Liability insurance for your operations — CGL for premises/operations, and commercial auto liability for road-licensed vehicles. Many trucking-related contracts expect at least $1–2M in liability coverage for commercial trucks.
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:
- Property/physical damage limits, perils, and deductible
- CGL and auto liability limits
- Exact wording for loss payee and additional insured
- Any special requirements by industry (e.g., cargo coverage, tools, downtime coverage)
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.
Internal links used
- Equipment leases – https://www.mehmigroup.com/services/equipment-financing/equipment-leases
- Truck and trailer financing – https://www.mehmigroup.com/services/equipment-financing/truck-trailer-financing
- Heavy equipment financing – https://www.mehmigroup.com/services/equipment-financing/heavy-equipment-financing
- Transportation expertise – https://www.mehmigroup.com/transportation-expertise
- Equipment line of credit – https://www.mehmigroup.com/services/equipment-financing/equipment-line-of-credit
- Asset based lending – https://www.mehmigroup.com/services/equipment-financing/asset-based-lending
- Equipment financing overview – https://www.mehmigroup.com/services/equipment-financing
- Truck repair financing – https://www.mehmigroup.com/services/equipment-financing/truck-repair-financing
- Rent Try Buy hospitality – https://www.mehmigroup.com/services/equipment-financing/rent-try-buy-hospitality
- Refinancing or sales leaseback – https://www.mehmigroup.com/services/equipment-financing/refinancing-sales-leaseback
- Working capital loan – https://www.mehmigroup.com/services/business-loans/working-capital-loan
- Vendor program – https://www.mehmigroup.com/services/vendor-program
- Calculator – https://www.mehmigroup.com/calculator
External citations used
- Canadian Dominion Leasing – FAQ confirming insurance is required on all leased equipment: https://www.cdlcorp.ca/index.php?Itemid=143&id=15&option=com_content&view=article
- Bercon Rentals – discussion of required insurance on rented equipment: https://www.berconrentals.ca/news/should-i-have-insurance-on-equipment-rented/
- Zensurance – overview of insurance for leased equipment and certificates naming the lessor: https://www.zensurance.com/blog/what-type-of-insurance-do-you-need-for-leased-equipment
- BrokerLink / Aligned / RBS – explanations of loss payee vs additional insured and loss payable clauses: https://www.brokerlink.ca/blog/loss-payee-vs-additional-insured, https://www.alignedinsurance.com/what-does-a-loss-payee-on-an-insurance-policy-mean/, https://www.rbs.ca/publications/insurance-covenants-in-a-commercial-lease/
- CRA – Business expenses: deductibility of commercial insurance premiums: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html
- CRA – Input tax credits (ITCs) overview and calculation: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/calculate-prepare-report/input-tax-credit.html and related methods pages
- SB Partners – Impact of HST and PST on insurance premiums and ITC eligibility: https://sbpartners.ca/the-impact-of-hst-on-insurance-premiums-in-ontario/
- Various trucking insurance sources on required liability and physical damage coverage: https://kaseinsurance.com/commercial-truck-insurance/, https://www.bcefinance.ca/articles/what-you-need-to-know-about-trucking-insurance, https://www.rjins.com/resources/our-blog/how-much-is-commercial-truck-and-trailer-insurance-in-ontario/, https://swiftins.ca/local-freight-trucks-have-specific-insurance-needs/, https://www.aandtinsurance.ca/cargo.html
- Jobsite Equipment & legal commentary on insurance covenants, loss payable, and co-insurance: https://www.jobsiteequipment.ca/docs/default-source/default-document-library/2020-jobsite-ldw85c305e9-87ab-45f4-8b4b-a6d7a577c660.pdf and https://www.cwilson.com/app/uploads/2016/08/covenants-to-insure-in-commercial-agreements.pdf
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