Generally, your automobile insurance covers the actual cash value of your vehicle, i.e., 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 is only worth $10,000 after a few years. If you get into an accident, your insurer will reimburse you up to $10,000 for it.

However, you can take out insurance that also covers this loss in value, either for the entire vehicle in the event of a total loss, or for the parts used to repair it as the result of an accident or some other covered damage.

These replacement insurance products are available whether you purchase or lease your vehicle.

Warning

Replacement cost endorsement and replacement insurance: They're NOT mandatory!

Automobile insurance is mandatory, but a replacement costFor automobile or home insurance, replacement cost is the amount needed to replace a damaged item with a new item.

If an insurance contract includes replacement cost coverage, the insured will receive a new item, or a cash amount equivalent to a new item, if an item has been irreparably damaged following a covered loss. 
endorsementAn endorsement is a document appended to an insurance policy to amend the scope or conditions of the policy.

In automobile insurance, endorsements have been standardized and are identical from one insurer to the other to make comparing insurers’ offers easier. 
and replacement insurance are optional. If these products aren't for you, don't buy them!

End of the warning

Two types of insurance give you this protection:

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

Only damage insurance agents and brokers can compare the two products for you and give you advice. Automobile dealers are not authorized to do this.

Warning

Automobile insurance is mandatory!

If you purchased replacement insurance, make sure that your vehicle is fully covered for the entire time the insurance is in force. It must include Section A (civil liability) and Section B (damage to insured vehicles). Otherwise, if you have an accident, you won't be compensated for any damages.

End of the warning

The tables below outline the features of a replacement cost endorsementAn endorsement is a document appended to an insurance policy to amend the scope or conditions of the policy.

In automobile insurance, endorsements have been standardized and are identical from one insurer to the other to make comparing insurers’ offers easier. 
 and replacement insurance.

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 mandatory

The price is fixed...

For the term of your insurance contract (most contracts are renewable annually)

Once, at the time of purchase.

The price is determined based on...

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 mandatory.

The cost of the insurance can be included in the loan taken out to buy the automobile.

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

 

Replacement cost endorsement

Replacement insurance

Choice of dealer to replace your vehicle...

You choose the dealer.

Depending on the option chosen when the insurance was purchased:

  • Option 1: The dealer named in the contract
  • Option 2: The 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 (generally)

Reimbursed

You must generally pay a deductible to the primary insurer of the vehicle. However, this deductible is reimbursed by the replacement insurance.

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

Often, yes. But check with your insurer first.

Yes

Differences: Renewal

 

Replacement cost endorsement

Replacement insurance

Renewable?

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

No. Sold for a fixed term.

Differences: Ending an insurance contract

 

Replacement cost endorsement

Replacement insurance

Can the contract be ended?

Yes. The unused portion of the premium is reimbursed, less a penalty.

Yes. The unused portion of the premium is reimbursed, less a penalty.

If you purchased the insurance from an automobile dealer, you can terminate 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 insurer's risk increases significantly.

The insurer can also end the contract in the first 60 days after the policy comes into force, without having to provide justification.

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

Buying a replacement cost endorsement

The insurance agent or broker who sells you automobile insurance can add a replacement cost endorsement to your policy.

Shop around. The price can vary from insurer to insurer.

An automobile dealer is not legally allowed to help you compare replacement insurance and the replacement cost endorsement or give you advice on these products. Only a damage insurance agent or broker can do this.

Buying replacement insurance

Replacement insurance can be purchased from an insurance agent or broker, or from an automobile dealer.

Automobile dealers are authorized to sell replacement insurance without being certified in damage insurance by the AMF, but if they do, they must:

  • Give you a document called a Distribution Guide;
  • Explain how replacement insurance works;
  • Clearly state the exclusions (what's not covered by the insurance);
  • Indicate the commission they receive, if it exceeds 30% of the cost of the insurance;
  • Inform you of the procedure for submitting a claim;
  • Explain your recourse if the insurer refuses to pay your claim.

The dealer must also offer you the following two options. You must choose one of these options when you buy the insurance.

  • Option 1: The vehicle will be replaced by the dealer named in the contract.
  • Option 2: The vehicle will be replaced by the dealer of your choice.

These options apply only when the vehicle cannot be repaired and has to be replaced following a covered loss.

An automobile dealer cannot sell you a replacement cost endorsement.

Warning

Include the cost of the insurance in the loan?

You can often include the cost of replacement insurance in your automobile loan. If you do, you'll pay interest on the cost of your insurance.

End of the warning
Insight

10 days to terminate your insurance contract

If you buy replacement insurance from your automobile dealer, you can terminate your contract within 10 days of signing it.

You will not have any costs or penalty. You will be reimbursed any premiumsA premium, or insurance premium, is an amount that a person or company must pay on a regular basis to keep their insurance in effect. For example, if Mary has to pay $200 per year to keep her life insurance in effect, then the premium is $200.

The premium should not be confused with the face amount, or insured amount, which is the amount that the insurance company has to pay out. In the same example, if Mary has life insurance that pays $100,000 to Peter upon her death, then the face amount is $100,000. 
 you've already paid.

Have you included your insurance in your automobile loan? Then your reimbursement will probably go towards reducing your loan. You might therefore have the same monthly payment, but you’ll have fewer payments to make.

End of the insight