A new vehicle is an important purchase. It is therefore normal that we want to protect it against the unexpected. We want our new acquisition to have at its disposal the best products, mechanics, and maintenance on the market. But what about coverage for when an accident occurs? To prevent the loss of our purchase, we wonder if it is advisable to select the replacement cost option in our insurance policy. However, when finalizing our purchase, the dealership also offers us replacement value insurance. What should we do?
CAN MY INSURANCE BROKER ALSO OFFER ME REPLACEMENT VALUE INSURANCE?
Your insurance broker can also provide you with replacement value coverage for your vehicle. In addition to offering you personalized options to meet your specific needs, your broker will also be able to explain the differences between replacement value insurance and a replacement cost endorsement, which is something that only brokers can do.
REPLACEMENT COST AND REPLACEMENT VALUE—ARE THEY THE SAME?
Replacement cost is a clause added to your auto insurance policy, usually through an endorsement (QEF No. 43 A to E). This means that in the event of a total loss of your vehicle, you will be entitled to receive a new car, and the model would be from the current or previous year. In comparison, in a basic policy, you would only obtain the value of your vehicle on the day of the loss. You will therefore not be able to get a new vehicle unless you pay the difference. In the event of a partial loss, replacement cost coverage allows you to replace defective parts with new parts from the vehicle manufacturer. Without replacement cost coverage, the replacement would be carried out with used parts.
The premium for this addition is based on the premium of your basic insurance policy. It varies based on the number of claims you have made in the past 6 years. In addition, each time you renew your policy, your vehicle has aged, and, therefore, the cost to replace it increases on a yearly basis. However, you may remove it from your policy at any time and at no cost. This option is without a doubt the least costly if you could guarantee that you would never have any accidents, but since we cannot foresee the unforeseeable, why go without? Keep in mind, however, that replacement cost coverage can only apply to a maximum of two accidents.
Replacement value is a separate insurance policy (QPF No. 5) that complements your basic policy. In the event of damage to your vehicle, the policy acts mostly like the replacement cost endorsement. However, replacement value insurance also has several additional advantages. For example, part of your deductible can be reimbursed in the event of a claim (option to choose between a reimbursement of $250 or $500), which would reduce your financial burden resulting from the accident. Replacement value insurance can also cover the rental of a vehicle similar in nature to your own if your basic insurance is not sufficient. As a result, you will feel more at ease while your vehicle is being repaired.
Replacement value policies may extend over a period of up to 84 months. In addition, your premium and insurability are guaranteed over this period. This may be beneficial for drivers with several accidents on file. It is also important to note that QPF No. 5 can apply to a used vehicle, whereas the replacement cost endorsement cannot. Just because your new vehicle is older than others doesn’t mean you should neglect it!
REPLACEMENT VALUE: MY DEALERSHIP VERSUS MY BROKER
- You are issued a claim payment to replace the insured vehicle, so you can purchase a new vehicle wherever you would like.
- A study by the Autorité des marchés financiers showed that replacement value insurance purchased from a broker is significantly less expensive than that purchased through a dealership. In 2016, over a 5-year period, the average premium was $1781 when sold by a dealership and $1141 when sold by an insurance agent or broker, for a difference of $640.
- Your broker has a certificate in damage insurance issued by the Autorité des marchés financiers.
- Basically, you will only be able to replace the insured vehicle at the dealership where you purchased it. You will be charged additional fees if you want to replace your vehicle at another dealership.
- Replacement value insurance purchased through a dealership is much more expensive, according to the previously mentioned Autorité des marchés financiers study.
- Since your premium is often paid at the same time as your automobile debt, it will drive up your payment amount over a period that is longer than the warranty.
The replacement cost endorsement and replacement insurance both have benefits when purchased through a broker, although premiums vary based on the situation. Feel free to contact your broker for more information!