Replacement Cost or Replacement Insurance? Replacement Cost or Replacement Insurance? à neuf ou assurance de remplacement?

​The basic rule of damage insurance is to compensate the insured for the value of the property on the day the loss occurred. Let’s say you buy a new car for $30,000. Over time, its value will decrease. Thus, if you make a claim at the point in time where the car has lost 50% of its value, you will receive a maximum of $15,000 in compensation.

If you want replacement cost compensation in the event of a loss, you have two options:

  • Add additional coverage to your basic automobile insurance contract (Q.P.F. no. 1) by purchasing a “replacement cost” endorsement (Q.E.F. no. 43).
  • Opt for replacement insurance (Q.P.F. no. 5), which is a separate insurance contract. 

Are they equivalent to each other? Is one option better than the other? It all depends on your situation.

Who can sell this coverage?

Both the “replacement cost” endorsement (Q.E.F. no. 43) and replacement insurance (Q.P.F. no. 5) are sold by damage insurance agents and brokers, who are certified professionals overseen by the Chambre de l’assurance de dommages (ChAD). It is their duty to advise the public and insureds. They are in the best position to help you compare the two products and identify the one that best meets your needs. Do not hesitate to ask them questions.

Replacement insurance (Q.P.F. no. 5) is also offered by car dealerships. Dealerships must give you a distribution guide that describes, in particular, the product, the nature of the coverage and the exclusions; they are not authorized to explain to you the difference between the two products. For this information, you must consult a certified professional—in other words, a damage insurance agent or broker.

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Regarding the purchase of replacement insurance from a dealership:
  • If you bought coverage from a dealership when you purchased or leased your vehicle, you may cancel the contract within 10 days of signing it, at no cost.
  • The premium for this insurance can be included in the vehicle’s financing contract. In this case, interest is charged, which increases the cost.
  • In 2017, the average premium for a five-year term was $1,846 when sold by a dealership and $1,182 when sold by an agent or broker—a difference of $660.

All consumers should take the time to weigh the pros and cons of both options before making a decision. The following table outlines the main differences between the two options, from purchase to claim.

​​​Automobile Insurance: Replacement Cost or Replacement Insurance?

Please note that the table is currently being revised and translated, and should be available shortly.  In the meantime, you may wish to consult the French version available here.

3/7/2019 8:53:39 PM