Auto: do I need to take out replacement insurance?
Replacement insurance or “replacement cost” rider? Some 22% of new vehicle owners or renters get both, according to a Chamber of Damage Insurance (ChAD) survey. Yet both products meet the same need. So which one to choose?
What is replacement insurance and the replacement cost rider?
Your basic auto insurance covers the actual value of your vehicle, unless otherwise specified. However, this falls rapidly. CAA-Quebec estimates that a car loses about 30% of its value in the first year.
The balance of your loan, it decreases less quickly. In the event of theft or a total loss accident where the insurer determines that it is not possible to repair the car, the compensation may therefore be less than the amount you have yet to repay on the car loan. Replacement insurance and the replacement cost rider fill this gap and get you back on the road behind the wheel of a new vehicle.
The two products have several differences.
Replacement insurance
It is suitable for new passenger vehicles as well as demonstrators and used vehicles. It is also available on ATVs, snowmobiles and certain high-end cars not eligible for the replacement cost endorsement.
This type of protection allows you to replace your car with an equivalent new model from the same dealer or to receive a sum of money for the purchase of a similar vehicle at another dealer. In this case, it is necessary to specify this option when signing the contract, otherwise you will be obliged to replace your vehicle at the original dealer. If you choose not to replace your vehicle, no other form of compensation will be paid.
Replacement insurance is often purchased from the dealership, but is also offered by insurance agents and brokers. This is why when making a claim, you may have to turn to two insurers. The first for basic insurance and the second for replacement insurance.
Replacement cost endorsement
The replacement cost rider is only intended for new vehicles and certain limited-mileage demonstrators.
This endorsement provides for the replacement of your vehicle with a similar one at the dealer of your choice. However, you can also choose to get cash compensation. So there is compensation even if you decide to take the bus rather than buying a car.
This protection is a simple addition to your basic auto insurance. You can only get it from an insurance agent or broker. In the event of a complaint, you contact a single insurer.
What are the advantages of replacement insurance?
In the event of theft or accident, you will have to pay a deductible to your basic auto insurer. However, it will be reimbursed by replacement insurance.
The premium is established according to the value of your vehicle and the duration of your contract. Since your driving record is not taken into account, this type of protection can be advantageous if you have several recent claims.
The price of replacement insurance is fixed for the duration of the contract. The period of coverage can extend up to eight years. If the premium is paid from the financing of the vehicle, however, you will have to pay additional interest.
What are the disadvantages of replacement insurance?
It generally costs more than the replacement cost endorsement. In contrast, the price of the rider goes up each year, especially after two years. This can represent between $ 200 and $ 1,000 for five years, depending on the ChAD.
Only the equipment and accessories indicated in the purchase and rental contract are covered. If you have a new stereo installed, you will not receive compensation for it. With a replacement cost rider, it would be covered.
Replacement insurance is often offered by the dealership at the very end of the sales process. In this context, you have less time to think about the best solution for you. Yet this decision should not be taken lightly.
How to terminate these two contracts?
In the event that you have signed up for replacement insurance with a dealer and you regret your decision, you have ten days to cancel your contract free of charge. To do this, you must send a notice to the dealer by registered mail. After this time, fees apply.
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