When your vehicle is a total loss

Why doesn’t your insurance indemnity cover the total cost of a replacement vehicle?

This article is for you if:You had an accident and your vehicle is a total loss, or your vehicle has been stolen.Your insurance contract includes Q.E.F. Endorsement No. 43 and option 43E¹;The amount paid by your insurance company does not cover the full cost of the replacement vehicle;and you would like to understand why.

Here are two possible reasons:

Your dealer’s price includes credit charges². Endorsement 43 does not cover these charges.
You borrowed money to pay for the damaged vehicle, and you are still paying off the loan.

1. Endorsement 43 does not cover credit charges when you purchase a replacement vehicle.

Let’s say the price advertised by your dealer is $25,000, but the real value of the replacement vehicle is $22,000. Your insurance company will cover only the real value of the vehicle.

Here’s an example:

2. Your insurer will first pay off the money you still owe for the damaged vehicle.

If you borrowed money from a financial institution or a dealer to buy the damaged vehicle, and you are still paying off your loan, money from the insurer must first be used to pay off this debt. To know if this is the case, check your loan contract.

Here’s how loan repayment works in practice:

Your insurer will send you a cheque made out to you and to the bank or dealer. You are required to endorse the cheque.
The bank or dealer will deposit the cheque and take part of the money to pay off your loan in full. The remaining amount will be made over to you, and you can use it to purchase a replacement vehicle.

Because your loan has been paid off, the money you receive will not be enough to cover the total cost of a replacement vehicle. You will have to make up the difference, either by using money you have saved, or by taking out another loan.

Here are two examples that will help you understand the process.