Insuring a car is mandatory. Find out what all you need to know before choosing your insurer: quotes, contracts, types of coverage, premiums, etc.
Before moving forward, you should first learn the language of insurers! Here are 5 essential terms.
A brief glossary of 5 key insurance terms
Premium: The price you pay to be insured.
Policy: This is the insurance contract.
Loss: In the insurance world, this word means an event (e.g., theft, collision) for which you make a claim.
Deductible: This is the amount that you agree to pay if you file a claim for a loss. It is deducted from the settlement amount. For example, if you have a $500 deductible and you have $400 worth of vandalism, you pay the costs. If the damages rise to $2,700, you pay to first $500, and your insurer pays the $2,200 that is left
Endorsement: Also called a rider, this is an additional clause in your contract for supplementary coverage.
Figure out what you need to know before choosing
Is the world of insurance complicated? A little, but we’re here to demystify it for you in a few steps. Go over them to better understand the various products available and choose one that will satisfy both your needs and your budget.
Without auto insurance, not only would you have to pay for the repairs to your own car in case of an accident that is your fault, but, above all, you would also be responsible for all costs associated with the property of others. On top of that, you could receive a fine, as the law states that all motor vehicle owners must hold an insurance policy.
Get quotes
You can buy insurance through an agent who works for an insurance company or through a broker. Brokers have agreements with firms whose products they sell.
Before buying, ask for quotes from at least three companies. You can get individual quotes over the phone, online, or use a search engine that will compare quotes for you. These tools are great timesavers when you start looking for insurance, but take note: they are less precise than doing business with an agent or broker.
Once you have your quotes, don’t be surprised if the price difference between one insurer and another is large, sometimes twice as much! Their coverage options vary as well. The moral of the story is: shop around and compare apples to apples… Some coverage options are vastly different.
Familiarize yourself with the contract
At first glance, one insurance policy in the province of Quebec looks like… all other insurance policies in the province of Quebec! It’s a fact: it’s always the same text, but the coverage changes based on the client’s choices.
The mandatory part of the contract: Chapter A
The mandatory component of auto insurance is the one that covers civil liability.
In insurance jargon, it’s known as Chapter A. In everyday language, you’ll often hear people say they’re insured “one way”; i.e., only for damage to others’ property caused when you are at fault.
Example: If you are in an accident that damages or destroys someone else’s property (e.g.: a broken road sign or shattered storefront window), your civil-liability insurance (Chapter A) will cover compensation for the loss.
The minimum compulsory coverage amount is $50,000—but in practical terms, that is very little: damage-related costs after an accident can climb very quickly! For that reason, most policies cover you for at least $1,000,000.
The optional part of the contract: Chapter B
Chapter B of the insurance contract covers any possible damage to your car. Most often, this part is optional, but not always: if your vehicle serves as guarantee for a loan, your contract must include Chapter B.
In Quebec, we often say that we’re insured “both ways” when we are underwritten by Chapter B. This does cost more for drivers with little experience—and yes, guys have to pay more than girls—but there are many other factors that can raise or lower the premium. Have a look at the list below.
Learn about the factors that influence your premium
Any of the criteria below can cause your premium to go up or down:
Where you live
How popular the model is with car thieves
Driving a sports or “muscle” car
The number of kilometres travelled per year and those travelled to commute to work
The number of accidents in your age bracket
Your driving record
Of course, you don’t have much, if any, control over some of these factors, such as your age. When it comes to good driving, however, it’s all up to you (you have your hands on the wheel)!
The truth—a better deal in the long run
Depending on your situation, it may be tempting to change one or two details to lower your premium. No matter what, always tell the truth to your insurer.
Are you the main driver of your car? Declare it.
Will you be using your car a lot for work? Say so.
If any of your information is inaccurate, your contract could be cancelled… maybe even right when you need it.
Do the math
Before signing on the dotted line for your auto insurance , assess your options thoroughly, as well as the risk you are prepared to manage.
Looking to save some money by saying “no” to Chapter B? It’s up to you: you are under no obligation to cover your own damages, unless the creditor who is financing your car insists on it. If your car is an older model, or coverage would cost too much, limiting yourself to Chapter A may not be a bad idea at all.
Focus on your budget
To help decide whether to add Chapter B, ask yourself this question: would you be able to afford the costs, which could include writing off your car as a total loss?
To keep costs down, you can pick and choose Chapter B options; e.g., take coverage for theft and vandalism but leave out other kinds. The most expensive is protection against accidents with collision.
Accepting to pay a higher deductible in case of a loss can also help lower your premium—an easy, uncomplicated way to save!
Differentiate between replacement insurance and the replacement cost endorsement
Once you have chosen your basic protection, you can add more to your contract, like the rider known as replacement cost endorsement. Another option is to buy separate replacement insurance.
What are these coverages for? To compensate for the following problem: in the case of a total loss or theft of a vehicle, a traditional policy will pay damages based on the value of the vehicle at the time of the incident. With a brand new or recent vehicle, though, that compensation amount will generally be lower than the payments remaining on the car.
Example: Your Honda Civic is declared a total loss. This year, its market value is $12,000. However, you must settle a debt of $14,500. You’ll have to pay the remaining $2,500 out of pocket.
The purpose of both replacement insurance and the replacement cost endorsement is to make up for that shortfall. But there’s a difference between the two.
What is the replacement-cost endorsement?
With a replacement-costendorsement (known as “valeur à neuf” in French), if you have an accident, you can claim the amount you spent when you bought your car. This option serves mainly for cars bought new.
You pay your insurer directly for this coverage and, every time your policy comes up for renewal, you decide whether to keep or cancel it.
What about replacement insurance?
Replacement insurance (“assurance remplacement” in French) is something else entirely: you pay for it once, at a fixed price. On top of that, you have to choose right away which of the following options will apply in case of an accident:
1) Replacement of your car by a new car of equivalent value from the same dealer
or
2) Payment of financial compensation toward the purchase of a new car of equivalent value from the dealer of your choice.
And for a used vehicle?
In the case of a used car, you will get a car of comparable value and kilometres travelled, or an equivalent compensation.
The premium amount for replacement insurance depends on many factors, such as the length of the coverage. This amount can be included in the monthly payments for the purchase of your car (which will raise your finance charges).
Comparing the two coverages
This table summarizes the differences between replacement cost and the replacement cost endorsement.
Differentiating criteria
Replacement insurance
Replacement-cost endorsement
How to get it
Separate insurance product sold by auto dealerships, used-vehicle dealers, insurance brokers and insurance agents.
Addition to an existing policy, available only from an insurance agent or broker; this option is normally used in the case of a new vehicle purchase.
How long coverage lasts
Up to 8 years depending on the product.
Usually 3 to 5 years.
Cost and payment options
Fixed price, agreed to at the start; may be incorporated into monthly vehicle payment plan.
Price set by the insurer based on several criteria; the annual premium usually increases every year.
Transferability (to subsequent owner or to same owner for a new vehicle)
Not transferable
Question of transferability doesn’t apply, as the replacement-cost endorsement is an addition to the buyer’s personal auto insurance policy.
Power of the insurer to cancel coverage or adjust the cost of coverage
Generally not in its power; coverage lasts until the end of the stated period, or with a benefit payment for theft or total loss. The cost of coverage, fixed at the start, never changes.
The insurer is authorized to cancel coverage or raise the cost (e.g., if multiple claims are made). The insured owner decides at each policy renewal whether to retain the replacement cost endorsement.
How the premium is determined
Based primarily on the value of the vehicle being insured. The driver’s history and driving record are not taken into consideration.
The same criteria as for calculation of the main insurance premium are used: driver’s age, gender, number of kilometres driven, place of residence, history of insurance losses, etc.
How to make a claim
The claim is a two-stage process: the vehicle insurer first compensates the owner of the vehicle, who must then make a claim for compensation to the company that sold them the replacement insurance.
Because the endorsement is part of the owner’s auto insurance policy, the claim for replacement value is part of the same general claim process with the insurer.
What happens after a claim
The policy is terminated. The policy is not transferable to another vehicle.
The policy is not automatically terminated. The owner’s new vehicle may be covered under the same policy.
You’re now familiar with the language of insurance and the options available to you. All that’s left to do is compare quotes to make the right choice for your situation!
Key No. 10
Shop around for insurance the same way you would for any other major purchase. Once you’ve settled on a company, don’t wait: get insured right away, at least for civil liability.
