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’s sold by your damage insurance agent or broker or by your damage insurance firm that offers products online.
  • Replacement insurance is separate from your automobile insurance. It’s sold by your automobile dealer, your damage insurance agent or broker, or your damage insurance firm that offers products online.

Damage insurance agents, damage insurance 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 authorized to do this.

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 between a replacement cost endorsement and replacement insurance

Who can sell this insurance?
Replacement cost endorsement
  • Damage insurance agents or brokers.
  • Damage insurance firms that offer products online
Replacement insurance
  • Damage insurance agents or brokers
  • Automobile dealers
  • Damage insurance firms that offer products online

Is the insurer the same as for my automobile insurance?

Replacement cost endorsement

Always.

Replacement insurance

Not necessarily.

How long will the cost of the insurance stay the same?

Replacement cost endorsement

For the term of your insurance contract. The price may therefore change each time the contract is renewed.

Replacement insurance

The price is fixed only once, at the time of purchase.

How is the price determined?

Replacement cost endorsement

Using all the factors applied by insurers (value of the vehicle, your driving record, etc.).

Replacement insurance

Based on the term of the contract and the value of the vehicle.

Is it paid for with the automobile insurance?

Replacement cost endorsement

Always.

Replacement insurance

Not necessarily. The cost of the insurance may be included in the car loan.

Which dealer will replace the vehicle?

Replacement cost endorsement

You choose the dealer that will replace your vehicle.

Replacement insurance

It depends on the option you selected when you purchased the insurance.

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

Important: If you purchased your replacement insurance after February 28, 2019, you may choose the dealer that will replace the vehicle at any time. 

Do I have to replace my vehicle in the event of a total loss?

Replacement cost endorsement

You can choose to:

  • replace your vehicle
  • receive a cash payment
Replacement insurance

You must replace the vehicle.

In the event of a partial loss, am I entitled to new original equipment manufacturer parts?

Replacement cost endorsement

Damaged parts are replaced with new original equipment manufacturer parts.

Replacement insurance

Damaged parts are replaced with new original equipment manufacturer parts.

Is a deductible payable?

Replacement cost endorsement

Yes, usually.

Replacement insurance

The deductible will be refunded.

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

Will I be reimbursed for the expenses incurred to temporariliy lease another vehicle when damage is covered?

Replacement cost endorsement

That’s often the case, yes, but check with your insurer.

Replacement insurance

Yes.

Can it be renewed?

Replacement cost endorsement

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

Replacement insurance

No, this insurance is sold for a fixed term.

Can the contract be terminated?

Replacement cost endorsement

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

Replacement insurance

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

If your premium was financed (combined with the car loan), the refund could be used to decrease the amount of the loan. This may simply result in fewer payments, which means the impact of the refund won’t be seen until the financing ends.

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

You can also ask for the insurance contract to be cancelled retroactively if both of the following conditions are met:

  • your vehicle is a total loss;
  • your replacement insurance coverage does not apply because you removed coverage from your automobile insurance.

You will be entitled to a refund of any overpayment of insurance premiums, minus a penalty, on the condition that you provide supporting documents.

Can the insurer end the contract?

Replacement cost endorsement

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.

Replacement insurance

Yes, but only if you don’t pay for your insurance.

Warning

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

Be careful when you remove coverage from your automobile insurance contract. If, for example, you drop collision coverage because your car has decreased in value due to age and, as a result, your automobile insurance doesn’t pay an indemnity in the event of a total loss, your replacement insurance won’t pay anything, either.

You’ll only be entitled to a refund of the replacement insurance premium, calculated from the time you dropped, for example the collision coverage, from your automobile insurance contract.

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