Buying a used vehicle can sometimes be more complicated than buying a new car. To avoid unpleasant surprises and lemons, the research process can often be laborious. After poring over classified ads, digging into the history of the car you’re interested in, and conducting a pre-purchase inspection, it’s only natural to want to protect it! In this article, Assurances Multi-Risques would like to tell you about a very interesting insurance product for used vehicles: replacement insurance.
*This insurance product is also available for new vehicles, but we will focus here on used vehicles.
What is replacement insurance?
Replacement insurance is similar to replacement cost insurance. Without this type of insurance, if your used vehicle is declared a total loss, your auto insurer will compensate you based on the market value of your car. This means that the amount you receive will take into account the depreciation in the car’s value.
Scenario: vehicle declared a total loss WITHOUT replacement insurance
To help you understand better, here is a quick scenario: you bought a used 2014 BMW X3 from a dealer for $36,000 in 2016. Two years later, you have an accident and your insurer declares it a total loss. Fortunately, you are not injured, but you are upset at the thought of having to buy a new car. To make matters worse, you learn that your insurer will compensate you for the market value of your vehicle because you don’t have replacement coverage! The insurer’s offer is therefore $23,000, while your loan amount is $29,000. No matter how hard you argue, your insurer’s offer is fair because it represents the actual market value of your vehicle (before the accident). You therefore have to absorb a loss of $6,000.
What if you had replacement insurance?
With replacement insurance, your auto insurer would have issued you an initial check for the market value of your car, or $23,000. Your replacement insurer would have added a 5% indexation to the price paid per year since the date of purchase, which could amount to $16,690, for a total of $39,690 with the primary settlement.
So, having replacement insurance for your used vehicle would have saved you $6,000 and even allowed you to receive an additional $16,360. But is it complicated to receive two claim checks from two different insurers? If you have an insurance broker who takes care of the logistics and assists you with the claim, the answer is no.
In conclusion, just like a car, the value of your vehicle can depreciate rapidly. To help you make an informed choice when buying a used vehicle and to protect your personal finances, we recommend contacting an independent insurance broker who can answer all your questions, explain the other benefits of this insurance, and even present you with personalized options tailored to your situation.