Vehicle replacement coverage, also known as Guaranteed Auto Protection (GAP), is an often-overlooked insurance option. Unfortunately, many drivers across Ontario and Canada don’t fully understand what it is and how it’s used, so they can’t take advantage of it.
This article explains how Gap insurance works in Canada, what it costs, whether it’s worth it, and how it compares to other endorsements, such as OPCF 43 and Optiom coverage.
What Is Gap Insurance?
Gap insurance is an optional coverage that protects your vehicle if it’s stolen or totalled in an accident. Gap insurance in Ontario and other places in Canada is typically offered by dealerships and insurers when you buy a new car. If you don’t take their offer, you may miss your chance to get gap insurance. You must also have basic car insurance coverage to qualify for gap insurance coverage.
How Much Does Gap Insurance Cost in Canada?
Gap insurance costs in Canada typically fluctuate between $350 and $900 annually, but your exact premium will depend on the car and your insurer. The ideal price should be approximately 5% of your collision and comprehensive insurance coverage. Your insurer will roll gap insurance payments into your monthly vehicle installments if you get it from the car dealership.
How Exactly Does Gap Insurance Work
Gap insurance protects you from making payments on a car that’s been totalled or stolen. If that happens, the insurer will provide you with the car’s cash value plus any remaining car payments, freeing you from paying installments on a non-functional or lost car.
Here’s an example to show you how it works:
You have a $15,000 car. After getting in an accident, insurers determine your car is currently worth $12,000 and covers you for that amount. This means you still owe your car financing company $3,000. Fortunately, you have gap insurance, which covers the $3,000 – meaning you don’t have to pay for the remaining car loan out of pocket.
What is Not Included in Gap Insurance?
Gap insurance doesn’t cover everything on your car when a total loss happens. There are some notable exclusions, such as:
- Additional car modifications not installed by the factory
- Extended warranties
- Lease expenses
Provincial Differences in Gap Insurance Across Canada
Car insurance works differently in each Canadian province. However, gap insurance works very similarly all over Canada. Here’s a more detailed breakdown:
| Province | How gap insurance works |
|---|---|
| Ontario | Covers the difference between your car insurance payment and your outstanding loan balance. |
| Alberta | Covers the difference between your vehicle’s current cash value and the remaining balance on your car loan or lease. |
| Quebec | Covers the difference between the car loan balance and its value at the time of its loss. |
| British Columbia | Covers the difference between your remaining car loan or lease balance and the settlement from your main policy. |
| New Brunswick | Covers the difference between the car’s loan or lease value and the cash settlement offered if the car is lost or written off. |
| Nova Scotia | Covers the difference between what you receive from your primary insurance and the car’s loan balance. |
Gap vs Waiver of Depreciation (OPCF43) vs Optiom
Gap insurance, a waiver of depreciation (OPCF43), and Optiom insurance all protect you if your car is stolen or written off after an accident. However, each insurance type has its own benefits and drawbacks. Let’s take a look:
| Gap Insurance | Waiver of Depreciation (OPCF 43) | Optiom | |
|---|---|---|---|
| Explanation | Extra insurance coverage in case your car is stolen or totalled in an accident. | Coverage that ensures you receive the original purchase price of the car if it gets totalled or stolen. | Coverage that enhances your current car insurance to ensure you receive the car’s full replacement value. |
| Benefits | Protects from debt, available for new and used cars | Full reimbursement based on original purchase price | Available for new and used cars |
| Drawbacks | Requires another purchase, only available if there’s balance on your car loan | Only available for new vehicles | Only pays out a claim if you buy a car at a similar or higher price compared to the one you lost |
| Good for | Both new and used cars, heavily-financed vehicles | New car purchases | Supplementing your existing car insurance |
Is Gap Insurance Worth It in Canada?
While often overlooked, gap insurance is important because it provides extra protection if your car is a total write-off. Instead of making payments on a car that you can’t drive, you can use the cash you saved to work towards buying a new car to replace the old one.
While car insurance is mandatory for all Canadian drivers, the coverage is somewhat limited and won’t protect you from total vehicle loss. Here are a couple of reasons why you should get gap insurance:
- Get peace of mind if your car is a total write-off after an accident or theft
- Reduce your financial risk if your car loan is larger than your insurance coverage
Things to Consider Before Buying Gap Insurance
Before purchasing gap insurance, you should ensure it’s worth getting. Consider these factors before talking to your insurer or dealership about gap insurance:
Key Advice from MyChoice
- Gap insurance can protect you if your car becomes totally unusable after a theft or an accident.
- Consider whether it’s worth buying gap insurance before asking your insurer or car dealership.
- Aside from gap insurance, you can consider a waiver of depreciation or Optiom insurance for similar types of protection.