Automobile insurance usually covers the actual cash value of your vehicle, meaning its value on the day of the loss, not how much you paid for it. Say, for example, you pay $30,000 for a new truck, but it’s worth only $10,000 a few years later: if you get into an accident, your insurer will reimburse you up to an amount of $10,000.

You can, however, get insurance that also covers the loss in value for either the entire vehicle, in the event of total loss, or the parts used for repairs following an accident or other covered damage.

These replacement insurance products are available whether you purchase or enter into a long-term lease for a vehicle.

Two types of insurance provide this kind of protection:

  • A replacement cost endorsement is an addition to your automobile insurance. It is only sold by your damage insurance agent or broker.
  • Replacement insurance is separate from your automobile insurance. It is sold either by your automobile dealer or by your damage insurance agent or broker.

Only damage insurance agents and brokers are allowed to compare the two products for you and advise you on them. Automobile dealers are not.

To understand all the differences between a replacement cost endorsement and replacement insurance, refer to the tables:

Warning

A replacement cost endorsement and replacement insurance are NOT mandatory!

While automobile insurance is mandatory, you are not required by law to have a replacement cost endorsement or replacement insurance. If these products aren’t for you, don’t buy them!

End of the warning

Differences: When buying or leasing

 

Replacement cost endorsement

Replacement insurance

Sold by...

Only damage insurance agents or brokers

 
  • Damage insurance agents or brokers
  • Automobile dealers
 

Same insurer as for your automobile insurance?

Always

Not obligatory

The price is set…

For the term of your insurance contract

Once, at the time of purchase.

The price is determined by considering…

All factors used by insurers (value of the vehicle, your driving record, etc.).

The term of the contract and the value of the vehicle.

Paid with automobile insurance?

Always

Not obligatory

The cost of the insurance can be included in the car loan.

Differences: When there’s an accident or other damage covered by the insurance

 

Replacement cost endorsement

Replacement insurance

Choice of dealer for replacement of your vehicle…

You choose the dealer.

Depends on the option selected when the insurance is purchased:

  • Option 1: The dealer named in the contract
  • Option 2: A dealer of your choice
 

Total loss: cash or replacement?

You can choose:

  • to replace your vehicle
  • to receive a cash payment
 

You must replace the vehicle.

Partial loss: new original equipment manufacturer parts?

Yes

Yes

Deductible payable?

Yes (usually)

 

Refunded

You usually have to pay a deductible to the primary insurer of the vehicle. However, the deductible is refunded under the replacement insurance.

 

Reimbursement of expenses incurred to temporarily lease another vehicle when damage is covered?

Often the case, but check with your insurer first.

Yes

Differences: Renewal

 

Replacement cost endorsement

Replacement insurance

Renewable?

Yes, at the same time as your automobile insurance, on the conditions set by your insurer.

No. Sold for a fixed term.

Differences: Ending an insurance contract

 

Replacement cost endorsement

Replacement insurance

Can the contract be terminated?

Yes. The unused portion of the premium, minus a penalty, is refunded.

Yes. The unused portion of the premium, minus a penalty, is refunded. If your premium was included in your financing, the refund could be used to decrease the amount of the loan, which could simply result in a reduction in the number of payments you are required to make.

If you purchased the insurance from an automobile dealer, you can cancel your insurance within 10 days without penalty.

Can the insurer end the contract?

The insurer can end the contract and, therefore, the endorsement that goes with it:

  • if you do not pay your insurance; or
  • if the risk for the insurer increases significantly.
The insurer can also end the contract in the first 60 days after the policy comes into force, without having to provide any justification for it.

Yes, but only if you do not pay your insurance.

Warning

Replacement insurance and automobile insurance: Avoid problems in the event of loss!

If, over time, you remove coverage from your primary automobile insurance contract—that is, the contract covering civil liability and damage to your vehicle—your replacement insurance will not pay anything if your primary insurer does not pay anything because you are not covered.

The takeaway: If you remove coverage from your automobile insurance contract, ask your insurer what the impact will be on your replacement insurance coverage.

End of the warning