The standard car insurance, whether collision or comprehensive, initially covers the original value of your vehicle. However, with the passing of time, the value of your car drops swiftly and significantly. In some cases, the value of your new vehicle may drop by as much as 30% of the actual value.
On the other hand, your balance car loan amount drops very slowly.
As such, in the event of a total loss accident where your car is damaged beyond repair, the insurer will determine your car insurance replacement value be much less than what you purchased it for.
Naturally, you will get compensation for a much smaller amount than the outstanding loan amount, let alone replacing the vehicle against damage.
From coverage to benefits, this article will discuss everything you need to know about replacement insurance – in the meantime, if you are looking for insurance products in Canada, consider visiting the experts at Surex.
What Is Full Replacement Value Car Insurance?
A standard car insurance policy typically pays you for the actual cash value of your car in case of an accident, even when your vehicle is totaled.
The problem here is that the cash value of your car will be inclusive of depreciation, i.e., you will not be compensated for the actual value of the vehicle that you bought it for.
- You can purchase replacement insurance directly from your car dealership or an insurer.
- Price-based cost equalling the purchase value of your car is added to your payment plan or lease.
- You can get coverage from one to eight years, depending on the tenure you have chosen for.
- Unlike standard car insurance, you cannot transfer it to another vehicle.
- If you are the one at fault, you have to first contact your insurance provider for the collision coverage, after that the party from whom you purchased the replacement insurance.
Advantages Of Replacement Insurance
Replacement insurance covers your car in ways that a collision or comprehensive insurance cannot. However, the cost of replacement insurance is usually higher than that of comprehensive or collision insurance.
While it does not cover things like repair and accident claims, here is how replacement insurance can benefit you:
- Under a collision or comprehensive insurance, you will have to pay a deductible in case of theft or accident that leaves your car beyond any fixing. With replacement insurance, you can get a reimbursement for the deductible you paid earlier.
- Replacement insurance does not consider your driving record. Thus, it can provide you with coverage even if you have filed several claims in the past.
- The premium of your replacement insurance policy is determined based on your car’s value and contract duration.
- Replacement insurance provides coverage for the entire contract duration, which can go up to eight years. However, if you pay the insurance premium through vehicle financing, you will have to pay additional interest.
- Most dealers allow you to cancel replacement insurance free of cost within ten days of purchasing it. The cancellation fee may apply after ten days. However, you will have to pay the cancellation fee regardless of when you are applying for cancellation if you purchased the replacement insurance from an agent.
How Does Replacement Car Insurance Work?
If your car is stolen or totaled, car replacement insurance will provide you with the money to buy a new vehicle of the same brand and model. You get the full value of your car without depreciation. They will, however, reduce the deductible from the payout.
For instance, if you bought a new car for $50,000 along with a collision/ comprehensive plus replacement insurance with a deductible of $500, your insurer will pay you $49,500 in case your car gets completely demolished after an accident.
Here are a few things you must know to understand how replacement insurance works:
- Replacement insurance will cover your car only as long as it is also covered under a comprehensive or collision insurance policy.
- The policy is subject to a few requirements, such as car age and mileage. However, the criteria may vary with each insurance company.
- Some insurance companies sell replacement insurance with a “better” car replacement policy. It means that in case of a totaling accident, you will get money for a newer model of your car with “better” car replacement insurance. The terms of such replacement insurance policies also differ from one company to another.
- Just like most car insurances, replacement insurance also requires you to pay the deductible at the time of claim settlement. You can understand how a deductible works from the example given above.
When Should You Consider Purchasing Replacement Insurance?
Here is when you might need replacement car insurance:
- When your car loan repayment schedule is longer than five years.
- When you buy a luxury car that is prone to lose value quickly.
- If the interest rate is significantly higher on your car loan.
- When you have purchased a vehicle with no down payment.
- If you are using the vehicle for business, and it has run for many kilometers.
Insurance Replacement Value Car – What Have You Learned?
When it comes to replacement value car insurance can be tricky to determine. But, it is worth considering if you have just purchased or leased a new car, primarily if the vehicle is financed.
While collision and comprehensive insurance also provide excellent coverage for your car, they depreciate the value of your car right from the moment you drive it off the showroom.
Whereas, with car replacement insurance, you can maintain the original value of your vehicle and claim the entire money in case your vehicle meets an accident and gets totaled.
The provisions for deductible, however, remain the same in almost every car insurance policy.