Are you considering buying or leasing a new or used vehicle? Before taking out automobile insurance, we recommend that you first learn about the different types of coverage available. There are many different options that could be suitable for you—so how do you choose the right one? Above all, the most important thing is to properly assess your needs!

To make things clearer, Assurances Multi-Risques wanted to inform you in this article of an option available when you buy or lease a vehicle, and that is replacement insurance. What is it? Who can sell this type of insurance? What are the differences between replacement insurance and a replacement cost endorsement? Read on to find out what you need to know!

What is replacement insurance?

Replacement insurance is an insurance policy that supplements your basic automobile insurance. It protects you against the depreciation of your vehicle.

Explanation: your automobile insurance covers the real value of your vehicle on D-Day, taking depreciation into account. In the event of a claim, you would therefore receive an amount equal to value of your vehicle on the day of the accident, and not the amount you paid upon purchasing.

For example, if you pay $40,000 for a new car, but after a few years it is only worth $20,000, in the event of an accident your insurer will reimburse you $20,000 at most for your vehicle.

With this additional coverage, you could, in the event of a claim:

Option 1: replace your vehicle with a car of an equivalent value from the same dealer;


Option 2: receive financial compensation for the purchase of a vehicle of an equivalent value from a dealer of your choice.

IMPORTANT: when purchasing your replacement insurance, you will be asked to choose between these two options. If you are buying from a dealership, be sure to choose option 2, which will give you more freedom.

What are the differences between replacement insurance and the replacement cost endorsement?

They are both very similar products, but with some differences. For example, only an insurance broker or an insurer can offer you a replacement cost endorsement. Replacement insurance, on the other hand, can also be sold by a car dealership.

  • The replacement cost endorsement is linked to your automobile insurance contract. Its price is therefore fixed for the duration of the contract, renewable each year under the conditions of the insurer. Please note that your claim history may affect the price of the replacement cost endorsement and, in some cases, may even affect your eligibility.
  • The price of replacement insurance is set once, at the time of purchase, and lasts an average of 3 to 7 years.

Where should I get my replacement insurance?

You can get replacement insurance directly from an insurer, from an insurance broker (who will shop around for you to make sure you get the best contract at the best price), or from a dealership.

GOOD TO KNOW: according to a recent study by the Autorité des Marchés Financiers, the remuneration rate for dealerships is around 62%, unlike traditional insurance sales networks, where it’s more in the region of 12 to 15%. So on average, a client pays nearly $846 more for replacement insurance at a dealership than if they had bought it from a broker. That should give pause for thought!

In fact, it is not uncommon for dealerships to pressure you to buy this coverage from them. But you should know:

You don’t have to say yes! Instead, take some time to think about it, shop around with different insurers, or call your broker, who will be able to advise you.

You can change your mind within 10 days of purchasing your insurance contract. To cancel your contract, you must notify the insurer by registered mail, using the Cancellation Notice given in the explanatory document provided by the dealership.

If you cancel within the specified time period, you will not be charged any fees or penalties. You will be reimbursed for any premiums already paid. If you have included the cost of insurance in an automobile loan, be aware that the reimbursement could be used to reduce the amount of your loan. In this case, it is highly likely that your monthly payments will not decrease. It is rather the number of payments that would decrease, thereby shortening the repayment period.

The insurer may give you more than 10 days, but not less! Check everything in the documents provided by the dealership employee.

Take your contract with you! As soon as an insurance offer is made, the car dealership employee must provide you with an information sheet informing you of your rights. You should read it thoroughly on site, sign it, then take a copy home with you.

The employee should also give you a comprehensive explanatory document describing the coverage offered, exclusions and how to make a claim. These two documents are there to guide you in making an informed decision. (AMF)

Before calling your broker or an insurance agent

Make sure you have all the information you need on hand: the make, the model, the year, the number of doors and the serial number of the vehicle you are looking to insure. The broker or insurance agent who takes your call will need this information to ensure the correct pricing and to facilitate settlement in the event of a claim.

Also consider the number of kilometres you plan to drive to get to work, or your current or expected average mileage per year. You will also be asked for the year you obtained your driver’s licence, your recent infractions and a list of your past claims.

Who will be driving the vehicle and how often? Have you had any accidents in the past? Assurances Multi-Risques recommends that you tell the truth about this information to avoid insurance issues. Have your needs or information changed over the course of the year (increased risks)? Your broker or insurer also needs to be informed of this!

Finally, if you don’t know what coverage to choose for your automobile insurance or if you are not sure of your needs, call your insurance broker—they will be able to advise you!

And to make things clearer, you can look at CAA Quebec’s table, which perfectly illustrates the difference between the replacement cost endorsement (F.A.Q. n° 43) and replacement insurance (F.P.Q. n° 5). To read it, click here.