Replacement cost or replacement insurance
When it’s time to lease or buy a new vehicle, it's also the perfect time to think about insurance to protect your investment.
Cars lose value quickly. To help protect you from depreciation in the event of an accident where your car is a total loss, there are two available optional coverages:
- Replacement cost endorsement (Q.E.F. no. 43)
This is an optional coverage that is added to your basic auto insurance policy and is available through insurance agents and brokers. - Replacement insurance (Q.P.F. no. 5)
This is a separate insurance policy that is available through insurance agents and brokers, as well through car dealers.
Which one should you choose?
Choosing which option works best for them can be a real headache for many consumers. Some even buy both! In fact, a survey by the Chambre de l'assurance de dommages (CHAD) shows that nearly a quarter of Quebecers (22%) who bought or leased a new car bought both types of coverage, while only one is sufficient. This can represent an overpayment of up to $1,700 over a five-year period!
Replacement cost or replacement insurance?
It all depends on your situation. To help you decide, the CHAD has published a comparison chart in June 2019 which outlines the main differences between the two options, from purchase to claim. Here is a summary of the main differences.
| Replacement cost endorsement (Q.E.F. no. 43) | Replacement insurance (Q.P.F. no. 5) | |
| Who can sell the coverage? | Damage insurance agents and brokers. These licenced professionnals can explain the difference between the two options to you. |
Damage insurance agents and brokers, and car dealers. Car dealers are not authorized to explain the difference between the two options to you. |
| Compensation in the event of a total loss | When you make the claim, you may choose to either : |
The insurer will pay you to replace your vehicle at a dealer of your choice.* Replacement is mandatory. *As of March 1, 2019 |
| Length of contract | One year, or occasionally two years, with the possibility to renew for up to five years, depending on the insurer. Customers insured with Aviva can renew the coverage up to five years. |
Between one and eight years. |
| Number of insurance contracts | One single insurance contract, same insurer. | Two separate insurance contracts, possibly two different insurers. |
| Average cost for five-year period | Between $500 and $1,000 Since the coverage is added to your basic auto insurance, its cost is included in your overall premium. |
In 2018, the average premium for a five-year term was $1,917 when sold by a dealership and $1,261 when sold by an agent or brokers. The premium can be includded in the vehicle's financing contract, which is subject to interest, resulting in increased cost. |
A decision not be taken lightly
You don’t need to choose between replacement cost or replacement insurance when you sign the promise to purchase your new vehicle. (You must, however, have proof of insurance of your new vehicle before getting onto the road).
Take the time to read the comparative chart prepared by the CHAD and weigh the pros and cons to help you choose the coverage that suits you best. The cost, length of contract, and flexibility of coverage are factors to consider. If in doubt, discuss it with your insurance broker.
Good to know
If you bought coverage from a dealership when you purchased or leased your vehicle, you can cancel the contract within 10 days of signing it, at no cost.
Sources:
Chambre de l’assurance de dommages – Replacement cost or replacement insurance?
Chambre de l’assurance de dommages – Les Québécois confus face à leur assurance automobile (in French only)
Autorité des marchés financiers du Québec
CAA Québec – Replacement insurance or the replacement-cost endorsement: which to choose?
The content in this article is for information purposes only and is not intended to be relied upon as professional or expert advice. Aviva and the Aviva logo are trademarks of Aviva plc. and are used under licence by Aviva Canada Inc. and its subsidiary companies.