Replacement insurance: what you need to know to avoid any inconvenience
For several years, motorists have chosen replacement insurance to obtain "replacement cost" compensation, that is, compensation that does not take into account the depreciation of their vehicle.
This replacement insurance provides for the payment of compensation following the replacement:
Of the designated vehicle in the event of total loss.
Parts damaged in the event of partial loss
For a total loss, the vehicle may be replaced with a new vehicle of equal, lesser or greater value. In the case of a vehicle of greater value, the insured must then pay the excess.
For partial loss, replacement of damaged parts is done with new original parts only.
When settling a claim, we must remember that we repair what can be repaired. If this is not possible or if the damage is too severe, then the part or the vehicle must be replaced.
Additional insurance to the basic policy
However, many consumers ignore or forget that replacement insurance complements the primary automobile insurance contract coverage (F.P.Q. # 1) that we all have.
As the owner of a motor vehicle, you must take out liability insurance which is included in the primary motor vehicle insurance contract (Chapter A of the policy). The other protections in this policy remain optional (Chapter B of the policy), in particular those which cover damage to the vehicle.
However, since replacement insurance is complementary to the primary automobile insurance policy, it covers the same risks as the latter. For replacement insurance to take effect, there must first be compensation from the primary insurance policy.
Example
You are in a collision for which you are at fault and have not purchased coverage to cover damage to your vehicle. Because you will not receive any compensation from your primary auto insurance, you will not be able to receive compensation from your replacement insurance.
The regulations in a nutshell
When your primary auto insurance policy covers your damage, you will receive an amount of money that matches the value of the part or vehicle at the time of loss. This amount takes into account their wear and tear (depreciation).
What your replacement insurance then covers is the difference between that day value and what it costs to replace your vehicle with a new one, or repair it with new original parts from the manufacturer.
Example
Your vehicle suffers an accident and is declared a total loss. Its value at the time of the accident was $ 12,000. To replace it with a new vehicle of the same type and quality, it costs $ 25,000.
Primary auto insurance reimbursement = $ 12,000 (day value)
Replacement insurance reimbursement = $ 13,000 (replacement value of the vehicle - compensation received from primary insurance)
What to know to take advantage of your replacement insurance
You must first be compensated by your primary insurance policy (F.P.Q. no. 1) in order to receive compensation from your replacement insurance.
The withdrawal of protection from your primary insurance contract (F.P.Q. no. 1) will have consequences on the coverage of your replacement insurance (F.P.Q. no. 5); talk to your broker or agent to make an informed decision.
To take advantage of Total Loss Replacement Insurance, you must replace the vehicle.
To benefit from partial loss replacement insurance, the insured vehicle must be a new or demonstration vehicle.
Replacement insurance also includes guarantees that provide for the reimbursement of the excess and the rental of a replacement vehicle within the limits indicated in the policy.
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