Replacement value, the dealer's offer or an equivalent offer from my broker?

Replacement value, the dealer’s offer or an equivalent offer from my broker?

by Charles-Antoine Carra

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« The devil’s in the details... »

Allow me to set the scene. You walk into your dealership and you make a fabulous purchase. When it comes time to leave the dealership, you enter the Financial Services Manager’s office to deal with some paperwork before you go. That’s when you find out that your expenses are far from over.

According to them, you need an extended warranty, a tire warranty, rustproofing, stain protection, an anti-theft device, and a QPF5: replacement insurance commonly known as the dealer’s replacement value. It’s a good product, of course. For a few dozen dollars a month, it guarantees you a new vehicle in the event of total loss of your vehicle. It’s almost silly not to take it. If you say no, it sometimes gives you the impression that you’re upsetting the director of financial services.

I’m exaggerating? Not really, as directors are certainly upset when they don’t sell the famous QPF5 insurance policy. Why? Because their profit margin is very, very high. What they don’t tell you is that your insurance broker, the one you’ll be dealing with if you ever need to make a claim, has the same product with even more comprehensive coverage at a cost several hundred dollars less. Even worse, for the first year, the traditional replacement value insurance may even be available for a few dollars.

So you call your broker, and he or she tells you – I have what the dealer has, but better, with my services and knowledge, and it’s more flexible and less expensive. Now you’re all in a quandary….

Aside from a few minor differences from one product to another, what all the replacement value products and replacement insurance offer is to replace your vehicle with a new one in the event of total loss. Basically, if your 2012 Honda is worth $15 000 at the time of the accident, and a 2015 goes for $20 000, you would receive $20 000. It’s very practical, as you might still have a $16 000 loan on the vehicle. It’s also practical if you haven’t respected your lease’s yearly mileage or if your lease agreement REQUIRES you to use new replacement parts in the event of an accident. Practical in the sense that you don’t have to pay out of your own pocket after an accident….

In such a case, the replacement insurance available through your broker or dealership, or even your automobile contract’s traditional replacement value insurance will do the job. But the devil’s in the details. When you’re looking forward to getting the keys to your new wheels, you seldom read the details.

QEF43 – Your automobile insurer’s replacement value

In essence, it’s the least expensive product. The price is based on a percentage of your premium. Four years of your replacement value premium should roughly equal that the premium for insuring your vehicle for one year. This means that if your yearly automobile premium were +/- $500, your replacement value insurance would cost roughly $500 extra over 48 months. It also means that you can settle your loss through only one insurer. You will also be able to replace your vehicle with an equivalent new model of the make and model of your choice. However, you’re not required to replace it. Do you find it all too expensive or are you changing vehicles? You can cancel at any time at no charge. On the other hand, if you have several claims, your coverage may be withdrawn or cancelled.

QPF5 – Replacement insurance

The two products are similar whether they are provided by the dealership or your broker, but there are three major differences: the premium should be roughly $500 less with your broker; if the new model isn’t to your liking, with your broker you won’t be required to replace your vehicle with the same make and model; if you decide to sell your vehicle or cancel this coverage, you’ll be required to pay a much higher penalty at your dealership.

Still not convinced? Contact us the next time you change your vehicle and we’ll go over the points one by one. Happy travels!

Auteur Lareau - Charles-Antoine Carra
Charles-Antoine Carra

Directeur - Service aux particuliers