Automobile dealers and insurance: What you need to know
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 loan life and disability insurance or 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.
What about auto insurance?
Automobile dealers are not authorized to sell or offer auto insurance. However, the dealer can give you the name of an insurance firm from which you may buy auto insurance or obtain a quote.
The dealer may receive remuneration if it gets you to contact the insurance firm. You don’t have to contact the firm, and you have the right to shop for your insurance with the intermediary of your choice.
End of the warning2- 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.
Make sure you won’t be denied coverage because of your circumstances. For example, are you above the eligible age? Do you have a history of health problems? Does your employment status meet the conditions of the contract?
To determine whether you might benefit from the coverage, take the time to read the explanatory document the dealer is required to give you.
Call the AMF Information Centre if you need help understanding your and the dealer’s respective rights and responsibilities when purchasing or selling insurance products.
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 Annual Report on Financial Institutions (pdf - 9 MB)
This link will open in a new windowUpdated on June 1st, 2022 (in French only), you can expect to pay on average $550 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.
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 of $2,204 and life and disability insurance to cover the loan at a cost of $2,320. 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 $5,369, including $845 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.
Want to cancel after the 10-day period? First find out how much the refund will be. It might be less than you expect because of the cancellation fee.
In any event, if the cost of the insurance is included in your car loan, the refund will be used to reduce the loan amount. You probably won’t see any difference in your monthly payments, as the number of payments would be reduced instead.
*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.
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 insight5- Don’t leave without the Fact Sheet
When offering you insurance, the automobile dealer employee must give you a Fact Sheet (pdf - 147 KB)This link will open in a new windowUpdated on June 12, 2019 informing you of your rights. You must read it over at the dealership then 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 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, may propose adding a replacement cost endorsement or replacement insurance to your automobile insurance.
The automobile dealer may offer 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.