FAQ: What is a Depreciation Waiver?

If you are in the process of buying a new car or you’ve just signed on the dotted line – congratulations! Along with that amazing new car smell comes a choice to purchase a type of coverage on your auto insurance called a depreciation waiver. In Ontario, this is also referred to as OPCF 43. In this blog, we are going to explain how a waiver of depreciation works and how it can protect you financially if you have an accident and need to make a claim.

What is Depreciation?

Simply put, depreciation means that the value of an item will decrease over time. Unlike a home that usually appreciates over time (increases in value), your vehicle becomes less valuable over time due to regular use and wear and tear. In fact, on average, a new vehicle will lose 20% of its value within its first year of use, and by the time five years rolls around, it has usually lost 40% of its worth.

How Does Depreciation Affect Insurance?

When it comes to making a car insurance claim, depreciation affects how much you will receive from your insurer and could put you in a less-than-ideal situation without the right coverage. Car insurance is intended to restore you to the same position you were in at the time of the loss (accident, theft, vandalism, etc.). The amount you’re reimbursed could be calculated in two different ways.

Actual Cash Value: The dollar amount you receive is equal to the amount the vehicle is worth at the time of loss. This calculation takes depreciation and the physical condition of your car at the time of the accident into consideration. Depreciation is based on many factors, including vehicle age, odometer reading, make and model, fuel economy, and general wear and tear.

Replacement Cost: The dollar amount you would receive is equal to the amount you would need to replace your vehicle with a new, similar vehicle — no more, no less.

Car insurance policies use the Actual Cash Value calculation in most scenarios.

How Does Depreciation Affect Car Insurance Claims?

If you’re in an accident and your two-year-old vehicle is totaled, your insurer would typically give you the Actual Cash Value (depreciated market value) of the vehicle – not the Replacement Cost. The tricky part of this situation is if you still have a lien on the car, you have to pay your lienholder for the difference that your insurance doesn’t cover. This could end up being a massive outstanding debt for a car that doesn’t even exist, which could lead to serious financial problems – all because of depreciation!
   
Luckily, this can be avoided if you get a depreciation waiver on your car insurance policy for your new car! But what is a depreciation waiver in car insurance?

Understanding What OPCF 43 Is

The Ontario Policy Change Form (OPCF 43) is a robust depreciation waiver endorsement for your vehicle insurance policy, ensuring you receive the full value of your vehicle in the event of a loss or theft. OPCF 43 is available to car owners who either purchased a new vehicle outright or are financing a loan. Additionally, there is also OPCF 43A, which is available to individuals who are leasing a vehicle. With these waivers of depreciation, Ontario drivers won't have to settle for the depreciated value if their brand-new vehicle suffers a loss or theft. 

You could receive compensation based on the actual purchase price, the manufacturer's suggested retail price at the time of purchase, or the cost to replace your vehicle with a new one of the same make and model. 

Not everyone can qualify for this depreciation waiver, meaning there are specific conditions to meet to receive depreciation waiver car insurance. This includes being the original owner and the loss occurring before your policy expires. Note that certain parts, like tires and batteries, are excluded from the waiver of depreciation endorsement.

What is a Limited Waiver of Depreciation?

The Limited Waiver of Depreciation provides similar benefits to OPCF 43 but is time-limited as coverage typically spans 24 to 48 months from the vehicle's delivery date. This waiver is particularly advantageous for owners of new or showroom demo vehicles, as it ensures compensation up to the original purchase price for a limited time, protecting your investment from rapid depreciation due to motor vehicle accidents or theft.

To make the most of this waiver of depreciation insurance for your brand-new car, it’s essential to verify your eligibility with your insurance broker. Always review the specific terms of your auto insurance policy to fully understand the duration and conditions of the waiver of depreciation coverage available for your vehicle.

Depreciation Waivers Save The Day (And Your Wallet!)

Many drivers are not aware of how beneficial a depreciation waiver in car insurance can be until they experience a total loss of their vehicle. A depreciation waiver removes your insurance provider’s right to deduct depreciation from the value of your vehicle in an insured claim. 

If you are in an accident and your car is lost or irreparably damaged, the depreciation waiver guarantees that you will be covered for the full purchase price, the manufacturer’s suggested retail price, or the cost to purchase a new vehicle of similar make, model, and quality.

Some insurers also offer additional coverage in partial loss scenarios that guarantee you will receive genuine manufacturer replacement parts, not generic parts. Ask a BIG broker about our carriers that offer this as a part of the depreciation waiver coverage!

Are You Eligible for a Depreciation Waiver?

You can purchase a depreciation waiver on your car insurance policy if you meet the following criteria:

• You are the first owner (or lessee) of the vehicle
• The vehicle is less than three years old
• You have Collision & Comprehensive or All Perils Insurance (Learn about Physical Damage Coverages)
• You have the Depreciation Waiver on your current policy and are switching to BIG

When you add a depreciation waiver to your car insurance policy, your BIG broker will ask for your vehicle bill of sale. If you are switching to BIG from another insurance provider, you may also be asked to show proof of the depreciation waiver on your previous policy.

Other Things to Know About The Depreciation Waiver

• If you are dealing with a claim and have the depreciation waiver coverage, you will still need to pay your insurance deductible.
• The cost of additional tires (winters), batteries, after-market upgrades, and parts are not included in the amount you would receive from your insurance company.
• For a claim to be eligible for the depreciation waiver coverage, it must occur before your policy expires.

Protect Your New Car with BIG

Enjoy your new wheels worry-free! If you have a new vehicle, add car insurance depreciation waiver coverage to your policy today. Contact a broker now, or get a car insurance quote online in minutes.