What is replacement insurance, also known as Quebec Policy Form No. 5 (Q.P.F. No. 5)?
Replacement insurance is complementary coverage to your auto insurance in Quebec. It can help offset your vehicle’s depreciation after a total loss or theft, depending on the conditions set out in the contract.
In this article, you will learn how this coverage works, how settlement amounts may be calculated and what to review before making a decision.
What is the difference between replacement insurance and basic auto insurance coverage?
In Quebec, replacement insurance is complementary coverage to your auto insurance policy. In case of theft or total loss, it can allow you to receive a higher settlement amount to replace your vehicle.
The goal is to limit financial losses related to the depreciation of your vehicle’s value.
Normally, you would only be compensated based on what the vehicle is worth at the time of loss. This means it can help protect the investment you made in your vehicle.
How is the settlement amount calculated?
The amount you receive depends on the terms of the contract and the condition of the vehicle when it was purchased.
- New vehicle: You are compensated based on the value of a similar current-year new vehicle, without depreciation.
- Used vehicle bought from a dealer: You are compensated based on the purchase price, plus an indexed percentage for each year of use.
- Used vehicle bought from a private seller: You may receive an increased settlement amount from your auto insurer.
What can replacement insurance include?
- No deductible in case of total loss
- Deductible reimbursement in case of partial loss
- Courtesy vehicle
- Fixed premium
- Available coverage period
What types of vehicles can be covered by replacement insurance in Quebec?
How does replacement insurance work?
A vehicle generally loses value over time. After a theft or a total loss, the settlement from your primary insurance may be lower than the amount needed to replace it.
Replacement insurance is designed to reduce this gap, based on the conditions set out in the contract. For example:
- Recent vehicle: If the vehicle is declared a total loss, its value may be lower than the cost of a comparable vehicle. The coverage may help reduce the impact of this difference.
- Used vehicle: The settlement varies based on the contract terms and the characteristics of the insured vehicle.
Before buying this coverage, review what is included, what is excluded and when the coverage applies.
Replacement insurance or replacement cost endorsement?
In Quebec, the replacement cost endorsement, also known as Quebec Endorsement Form No. 43 (Q.E.F. No. 43), also helps protect you against depreciation.
Both options work in a similar way. However, a replacement insurance policy (FPQ 5) may offer additional features such as:
- Separate contract: It does not affect the cost of your main insurance policy.
- Fixed premium: The cost does not change during the contract term.
- Deductible reimbursement in case of total or partial loss.
- Courtesy vehicle extension.
For its part, the replacement cost endorsement (Q.E.F. No. 43) offers the advantage of paying a settlement by cheque, which gives you the option not to replace the vehicle.
The cost of a replacement insurance policy depends on your vehicle model and features. A personalized estimate is needed before a price can be determined.
How do you know if replacement insurance is right for you?
The choice between replacement insurance and other coverage depends on your vehicle, your contract and your needs.
