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Auto insurance: why choose replacement insurance?

You may have heard of replacement insurance for automobiles and recreational vehicles? Do you know when it’s better to choose this product over replacement cost? Let’s take a look.

Products that complement auto insurance

In general, with your automobile insurance, you cover the actual value of the vehicle, i.e. its value on the day of the loss. However, there are two riders (or clauses) that also cover this loss of value. This can apply to the entire vehicle in the event of a total loss, or to parts in the case of repairs. These riders are valid whether your vehicle is purchased or leased.

The first, the replacement cost rider, allows you to get a new vehicle in the event of a claim. After a few years, as the vehicle ages, the replacement value can be costly. This is normal, since this insurance covers the difference between the depreciated vehicle and its replacement value.

The particularities of replacement insurance

Today, we’re more interested in the second rider: replacement insurance. This will replace your damaged vehicle with a new one or pay for new parts to repair it. So how does it differ from replacement cost insurance?

  • This product guarantees that the insured will receive a current year vehicle (not a new vehicle). So if you have an accident on January 1, 2021, for example, you will receive a 2021 vehicle. Not a new 2020 vehicle.
  • Replacement insurance can apply to both new and used vehicles.
    • Replacing a used vehicle? Your new vehicle will need to have similar mileage to when you bought it. Let’s say you bought a 2018 model in 2020. This will be replaced by a 2020 model with mileage comparable to the model 2018 when you purchased it.
  • The premium for this insurance is guaranteed and cannot increase during the course of the contract.
  • The product reimburses the deductible and covers up to $2,250 for a temporary vehicle rental.
  • While the replacement cost rider can be cancelled by the insurer, the replacement insurance can only be cancelled by the insured. It doesn’t matter how many claims are made.

Replacement insurance: do you need it?

Replacement insurance can apply to any type of roadworthy vehicle. For example, a passenger vehicle, business vehicle, RV, motorcycle, snowmobile or ATV can benefit from this rider.

Interestingly, you can take advantage of this product no matter which company insures you. However, here’s an important reminder: auto insurance is mandatory, but replacement cost insurance and replacement value insurance are not! Take the time to discuss your situation with your broker to see if these products are right for you.

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