Replacement Cost or Replacement Insurance?
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. It is mandatory for dealerships to provide you with information that describes 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.
Important: the new Q.P.F. no. 5 form is available as of March 1, 2019. For contracts purchased and in force before March 1, 2019, the coverage offered at the time of purchase continues to apply.
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 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 broker—a difference of $656.
Replacement Cost or Replacement Insurance?
All consumers should take the time to weigh the pros and cons of both options before making a decision. This table outlines the main differences between the two options, from purchase to claim.
Protection of the Public and Recourse
All damage insurance representatives are certified professionals who are overseen by the ChAD and governed by the Code of ethics of damage insurance representatives, and the ARDFPS and its regulations. If an insured feels that his professional has caused him harm, he may complain to the Syndic’s Office of the ChAD.
In cases of fraud, the insured can turn to the Fonds d’indemnisation des services financiers of the Autorité des marchés financiers.
If Q.P.F. no. 5 is sold by a car dealership, the ChAD has no jurisdiction since the product was not distributed by a certified representative. Furthermore, in a case of fraud, the insured is not eligible for compensation from the Fonds d’indemnisation des services financiers of the Autorité des marchés financiers because dealerships are not governed by the ARDFPS.