What Is a Waiver of Depreciation, and Do I Need One?

Understanding A Waiver of Depreciation

While there's nothing wrong with purchasing a used vehicle, there's something special about driving a brand-new car off the lot as its first owner—and it's not just that new car smell. You get to research the perfect vehicle for you, from performance and features to style and even colour, and you can even customize the details for a unique combination that's all yours. But that pride of ownership makes it all the more heartbreaking if your new car suffers damage in a total loss accident or is stolen, and you cannot get the insurance compensation necessary for another brand-new vehicle because the value has depreciated.

The solution to that problem is adding waiver of depreciation coverage to your auto insurance when you purchase your new car or truck. With a waiver of depreciation, Ontario vehicle owners can rest easy knowing they can replace their new vehicle with another brand-new truck or car should it be stolen or involved in a total loss accident. Here are the answers to a few common questions about a waiver of depreciation from the insurance experts at Morison Insurance.

What Is a Waiver of Depreciation in Ontario?

So, what exactly is a waiver of depreciation? Ontario auto insurance brokers strongly recommend adding a vehicle depreciation endorsement to auto insurance coverage for anyone purchasing a brand-new vehicle. Suppose you've never experienced the total loss of a vehicle within the first couple of years of driving it off the lot. You may need to know how quickly new cars and trucks depreciate in value. When you file an insurance claim in that less-than-ideal situation, you usually are only eligible to receive the current value of the vehicle. Due to inevitable depreciation, that will not be enough to replace your damaged or stolen car or truck with a new one, and you'll be looking at finding a used vehicle as a replacement or paying out of pocket for the difference in cost for a new vehicle.

With a waiver of depreciation in place, Canadian drivers don't need to worry about that problem because, in the event of vehicle theft or a total-loss accident, they will be eligible to receive the cost of a new replacement vehicle without depreciation factored in. A waiver of depreciation in Ontario is also known as an OPCF 43 endorsement, and according to the Financial Services Regulatory Authority of Ontario (FSRA), an OPCF 43 "removes the insurer's right to deduct depreciation in the event your vehicle is a total loss." Essentially, that means when you have a waiver of depreciation endorsement, and you suffer a total loss within the coverage period, your insurance company will pay the lowest cost from these options:

• The actual purchase price
• The manufacturer's suggested list price at the time of purchase
• The cost of replacing your lost car or truck with one of the same make and model or another make and model that has similar features

What Are the Conditions to Get a Waiver of Depreciation?

You may wonder why everyone doesn't get a waiver of depreciation. Ontario drivers generally add this endorsement to their auto insurance if they understand what it does and why it's so valuable to new vehicle owners, provided they meet the primary conditions for depreciation waiver coverage. The requirements may vary depending on the individual insurance company, but they generally fall within the same parameters. The waiver of depreciation eligibility conditions include:

• Vehicle must be brand-new or have been driven less than 5,000 kilometers
• You must be the original owner of the vehicle
• The loss must occur while the waiver of depreciation endorsement is active
• You must provide a bill of sale and ownership

It's worth noting that there is also a similar endorsement called OPCF 43A that applies to newly leased vehicles and otherwise offers coverage similar to OPCF 43. Auto insurance policy owners should also know that some insurance companies may decline a waiver of depreciation for a vehicle valued above $100,000.

What Is the Rate for Waiver of Depreciation Coverage?

You may wonder how much your annual insurance premium will increase if you add a waiver of depreciation. Ontario brokers will tell you that the cost of a waiver of depreciation can vary considerably based on factors such as the value of your vehicle, the insurance company issuing the endorsement and other considerations. The best way to find out more about rates for depreciation waiver coverage is to call your Morison Insurance broker and let them know more about the vehicle you're considering purchasing so they can find the best possible coverage for your unique situation.

Does a Waiver of Depreciation Apply to All Parts of a Vehicle?

Your waiver of depreciation will apply to the vehicle itself but not its replaceable parts, such as the battery or tires. That means that if you experience a total loss situation, you'll be able to receive insurance compensation for the vehicle itself but not parts like the tires. Consult with your insurance broker to find out more about what exactly is included or excluded.

If I Have a Used Car, Can I Get a Waiver of Depreciation in Ontario?

It is not possible to get a waiver of depreciation for a used vehicle. Even if the vehicle you purchase is almost new and has been driven for less than 5,000 kilometers, one of the critical conditions for a waiver of depreciation is that you must be the vehicle's original owner. It's worth noting that you also cannot get a waiver of depreciation for a car or truck used as a demonstration vehicle by the auto dealership.

What Happens After a Vehicle is Written Off Without a Waiver of Depreciation?

Suppose you don't include a waiver of depreciation on your vehicle insurance policy when you purchase a new car or truck. In that case, you may be surprised by how quickly vehicles depreciate in value after they're driven off the lot. With a typical car insurance policy that doesn't have a depreciation endorsement, your car is insured for the amount it's valued at when you file a claim, not the original purchase price. The unfortunate reality is that a car depreciates by around 10 to 20% as soon as it's driven away from the dealership and will continue to go down by about 20% every year after. That means by the time you've had your car for two years, it may only be valued at 40% of the original amount you paid. If you have your new car stolen or suffer damage in a total-loss accident, you'll get a fraction of what you paid from your insurance provider. You'll have to either cover the remainder of the cost for a new vehicle out of your pocket or shop around for a used vehicle.

A waiver of depreciation isn't necessarily worth it because you're unlikely to get into a collision. Indeed, most drivers are only involved in an average of three or four collisions throughout their lifetime—but it'll be excruciating if you get into a total-loss collision with a brand-new vehicle and can't replace it with the same or a similar vehicle. Your new car or truck is a significant investment, and it's essential to protect it with adequate coverage so you can have the peace of mind that comes with knowing you have complete financial protection in the event of an unfortunate situation.

What Is the Coverage Period for a Waiver of Depreciation?

That depends on the endorsement you add to your car insurance policy and the terms offered by your insurance company. Still, a waiver of depreciation will generally be provided for a 12, 24 or 36-month coverage period. A waiver of depreciation typically will be at most three years, but some companies may offer a 48-month version. When you call an experienced broker at Morison Insurance, speak with them about the length of coverage you're interested in so they can find the best option for your car insurance policy.

Who Can I Speak to About Including a Waiver of Depreciation on My Auto Insurance?

If you're thinking of buying a brand-new car or truck, the first step is to call 1-800-463-8074 and speak to a licensed car insurance broker at Morison Insurance. We work for our clients, not for the insurance companies, so you can rely on us to search a wide range of insurance company partners to find the best possible options for your insurance policy—including a uniquely tailored waiver of depreciation. Ontario drivers aren't all the same, and their insurance coverage shouldn't be a one-size-fits-all version. As a family-owned business, we take pride in delivering the same outstanding service we would expect from our family members. Give us a call today to find out more about adding a depreciation waiver to your auto insurance policy when you purchase a new vehicle.