Replacement cost insurance: learn about the provisions of your contract

A standard auto insurance policy in Quebec

In Quebec, we have a standard policy. All motorists are required to have civil liability insurance, but they can choose other optional coverage, including replacement cost coverage.

When an accident happens, the standard policy provides that the settlement of a claim must take into account the vehicle’s wear and tear (depreciation). The payment therefore reflects the value of the vehicle on the day of the loss— unless you purchased replacement cost coverage.

Replacement cost coverage

There are two types of coverage under which the payment you’ll receive won’t take into account the depreciation of your vehicle:

1. The Q.E.F. No. 43 (A to F) endorsement – Change to indemnity
2. The Q.P.F. No. 5 policy – Replacement insurance

These two types of coverage specify how the claim is to be settled depending on whether the loss is partial or total.

Partial loss

If you have Replacement insurance (Q.P.F. No. 5) or option A of the Change to indemnity endorsement (Q.E.F. No. 43), the cost of the damage will be determined based on the cost of new OEM parts from the manufacturer, and no deduction for depreciation will be applied. Keep in mind that the vehicle must be repaired for such protection to apply.

If a new part is not available or no longer manufactured, the insurer must pay the last price that the new OEM part from the manufacturer cost.

Total loss

The options differ depending on whether you have purchased the Change to indemnity endorsement (43 E) or Replacement Insurance (Q.P.F. No. 5).

Option 43E – Payment based on vehicle replacement value

This endorsement is a complement to the standard policy (Q.P.F. No. 1) and is intended to modify contract payment terms.

If you have Option 43E of the endorsement and your vehicle is a total loss, the following options apply:

• Replacement with a new vehicle having the same specifications, equipment and accessories as the one you had. In this case, the amount of damages is equivalent to the price of the new identical vehicle.

If such a vehicle is not available, it will be replaced by a new vehicle with similar specifications, equipment and accessories. The amount that your insurer will pay will correspond to the price of this similar vehicle.

• Replacement with a new vehicle other than those described in point 1 or by a used vehicle: The amount paid by your insurer will be equivalent to i) the price of the new or used replacement vehicle or ii) the purchase price paid for the vehicle declared a total loss. The payment amount will be the greater of the two amounts.

• No replacement of the insured vehicle

If the vehicle isn’t replaced, the payment made by your insurer will be equal to the purchase price you paid for your vehicle or its market price at the time of purchase. The payment amount will be the lesser of the two amounts.

Whether you choose option 2 or 3, the payment will never exceed the amount that would have been paid if your vehicle had been replaced with a new one having the same specifications, equipment and accessories as your original vehicle (option 1).

Replacement insurance (Q.P.F. No. 5)

This insurance is intended to replace a vehicle declared a total loss. It supplements the standard insurance policy (Q.P.F. No. 1). This means that once a loss occurs, two insurance policies will provide payment: the standard insurance policy (Q.P.F. No. 1) and the Replacement insurance policy (Q.P.F. No. 5).

Under your Q.P.F. No. 1 policy, you’ll receive a payment corresponding to the value of your vehicle on the day of the accident. The Replacement insurance policy (Q.P.F. No. 5) provides for the payment to replace your vehicle declared a total loss with a new one having the same specifications and equipment. However, you must submit proof of replacement in order to receive the payment, which will represent the difference between the value of the replacement vehicle and the payment received under your Q.P.F. No. 1.

If no replacement vehicle is available, an equivalent vehicle may be selected. The payment will represent the difference between the payment received under your Q.P.F. No. 1 and the value of the equivalent vehicle.

A policyholder may also choose a vehicle of a lesser or greater value.

In the case of a vehicle of lesser value, they payment will represent the difference between the payment received under Q.P.F. No. 1 and the value of the replacement vehicle.

In the case of a vehicle of greater value, the policyholder will have to pay the difference between the price of the replacement vehicle and the cost of a new vehicle having the same specifications and equipment as the vehicle to be replaced.