Replacement cost or replacement insurance: which to choose?

This advertorial is brought to you by Groupement des assureurs automobiles (GAA)

Under the basic auto insurance policy, parts damaged in an accident will be replaced by recycled manufacturer parts. And, in the case of theft or total loss, the policy provides that you’ll be compensated for the value of the vehicle on the day of the loss (taking into account depreciation).

What if you’d rather be compensated for the “replacement cost”? There are coverages you can purchase. In fact, there are two options:

  • Change to Indemnity (Q.E.F. No. 43 (A to F)), known as “Replacement Cost” endorsement
  • Replacement Insurance (Q.P.F. No. 5)

In the event of a loss, both coverages guarantee that the compensation will not factor in your vehicle’s depreciation. To purchase either of these options, you need to have the basic insurance policy (Q.P.F. No. 1). It’s mandatory!

Which should you choose? While comparable, the coverages differ, which may impact your choice depending on your needs. Here are the features.

Duration and cost of insurance

For Replacement Insurance, you choose the duration at the time of purchase, for a maximum of eight years. The cost is established at the time of purchase and this for the contract duration, based on the number of years chosen and the value of the vehicle.

The Replacement Cost endorsement also has a defined period, which generally varies between three to five years. However, it is renewed each year, at the same time as your auto insurance policy. You can therefore decide each year whether or not to renew this additional coverage. The cost is established each year, at renewal (as defined by a percentage of the premium for your basic insurance policy).

Your vehicle is stolen or declared a total loss

With Replacement Insurance you are obliged to replace the vehicle based on the option chosen when you purchased coverage:

  • Replace the vehicle with a new vehicle (with the same features, equipment and accessories) from the dealer designated under the policy
  • Receive payment of the indemnity and replace the vehicle from the dealer of your choice

Such a claim automatically terminates the Replacement Insurance policy, which can’t be transferred to the new vehicle.

Under the Replacement Cost endorsement, you can decide when you make the claim whether:

  • To replace the vehicle with a new vehicle (with the same features, equipment and accessories) or with a used vehicle, from the dealer of your choice
  • Not to replace the vehicle and receive a cash indemnity

Following this claim, the endorsement coverage does not automatically end. It could be offered to cover the new vehicle.

In both cases, if you replace your vehicle with a vehicle of greater value, you pay the difference.

Parts used in the repair

N.B. These two options do not guarantee that the damaged parts will automatically be replaced with new manufacturer (OEM) parts. This will only be done if they cannot be repaired.

Questions about auto insurance?

Visit the Groupement des assureurs automobile web site, as well as the web site. You can also contact the Insurance Information Centre at 514 288-4321 (Montreal area) or 1 877 288-4321.

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