You can’t buy or lease an automobile from a dealer without meeting at some point with the business manager. The business manager can offer two types of insurance: car loan life insuranceLife insurance is a contract under which the insurer, in exchange for a premium, undertakes to pay the beneficiary the benefit provided for in the contract in the event of the insured's death or until a specified period during his/her lifetime. and replacement insuranceIn automobile insurance, replacement insurance provides for the payment, following a covered loss, of an indemnity that does not take into account the depreciation of your vehicle. (Q.P.F. No. 5).
Here are five tips that will help you make an informed decision if your automobile dealer offers you these types of insurance.
1- You don’t have to say yes
No one can make you buy replacement insurance. However, the financing company might, based on your credit report, require you to have your loan insured so the company will be repaid in the event of death or disability. Even in this case, it’s your choice which insurance product and insurer to go with. You’ve got time to look around for the best deal. If you like what the dealer is offering, you can purchase the insurance from its website or by phone.
Did you know?
Insurance sold by lenders and merchants, including automobile dealers, is subject to specific rules intended to ensure consumer protection. To find out more, consult our website content on this topic.End of the insight
2- You may not need the insurance
If you’re offered loan life insurance, check whether you’re already covered by similar insurance (at work, for example) so you don’t end up paying twice for the same coverage.
Also check whether you’re over the eligible age or whether the state of your health could prevent you from receiving full coverage.
To determine whether you might benefit from the coverage, take the time to read the explanatory document the dealer is required to give you.
3- It’s best to shop around
You will probably get a better price if you shop around. On average, insurance from an automobile dealer costs more than from a broker or an insurer.
If you choose to include the cost of the insurance in your loan, you’ll pay interest on the cost of insurance in addition to the interest on your car loan.
So take the time to read about the insurance product in the explanatory document the dealer is required to give you, and compare it with other products and prices offered elsewhere.
You could save a bundle by shopping around for replacement insurance!
According to the AMF’s 2019 Annual Report on Financial Institutions (pdf - 8 MB)This link will open in a new windowUpdated on 10 June 2020L’Autorité des marchés financiers (l’Autorité) est mandatée par le gouvernement du Québec afin d’administrer les différentes lois relatives au secteur financier. L’Autorité supervise l’ensemble des activités des institutions financières opérant sur le territoire québécois, à l’exception des banques. C’est dans cette perspective que l’Autorité rend publics les renseignements requis en vertu des lois régissant les institutions financières par la publication du Rapport annuel sur les institutions financières 2019. Les renseignements de nature statistique sont propres aux secteurs des coopératives de services financiers, des sociétés de fiducie, des sociétés d’épargne et des assureurs de personnes et de dommages, incluant l’assurance automobile. Ce rapport présente également des statistiques concernant les régimes volontaires d’épargne-retraite (RVER), l’Autorité étant responsable de la délivrance des autorisations aux personnes morales qui désirent offrir un tel régime. (in French only), you can expect to pay on average $613 more when you buy replacement insuranceIn automobile insurance, replacement insurance provides for the payment, following a covered loss, of an indemnity that does not take into account the depreciation of your vehicle. from an automobile dealer than when you buy it directly from an insurer or a broker. This is due in part to the remuneration paid to the dealer.End of the insight
An example of the cost of insurance at a car dealership
Léonie buys a new car for $42,000.
She accepts the dealer’s offer to take out replacement insurance at a cost $2,005 and life and disability insurance to cover the loan at a cost of $2,054. These two amounts will be added to her car loan, on which she will pay interest of 4.99% over 84 months.
When she has finished reimbursing her loan, she will have paid $4,817, including $758 in interest, for the two insurance coverages.
Léonie could have saved hundreds of dollars if she had reviewed her insurance needs before heading off to the dealer and not added the cost of the insurance to her car loan.
4- You have the right to change your mind
You can change your mind anytime in the 10 days after you purchase your insurance. To cancel your contract, you must notify the insurer by registered mail using the Notice of rescission in the explanatory document the dealer has given you.
If you cancel within the 10-day period, you will not have to pay any costs or penalties and will be refunded any premiums you’ve already paid. If the cost of the insurance is included in the car loan, the refund could be used to decrease the amount of your loan, in which case, the amount of your monthly payments would most likely not decrease. Instead, the number of payments would be reduced, thereby shortening the repayment period.
An insurer can give you more, but not fewer, than 10 days. You can find this information in the documents given to you by the automobile dealer employee.
5- Don’t leave without the Fact Sheet
When offering you insurance, the automobile dealer employee must give you a Fact Sheet informing you of your rights. You must read it through, sign it and take a copy home with you.
The employee must also give you an explanatory document containing a comprehensive description of the coverage offered, the exclusions and the procedure for submitting a claim. The Fact Sheet (pdf - 147 KB)This link will open in a new windowUpdated on 12 June 2019 and the explanatory document are tools designed to help you make an informed decision.
Replacement cost endorsement or replacement insurance: Which one should I choose?
Your insurance agent or broker, or your insurance firm that offers products online, is proposing to add a replacement cost endorsement or replacement insurance to your automobile insurance. The automobile dealer is offering you replacement insurance. These types of coverage are not required. If you want to benefit from them, you will have to choose either the replacement cost endorsement or the replacement insurance because you can’t claim an indemnity under both at the same time if there’s an accident or your vehicle is stolen.
How do you make an informed decision? First find out about each these products. Damage insurance agents and brokers and damage insurance firms that offer products online are allowed to compare the two products for you and advise you on them. Automobile dealers are not.