Your guide to Limited Waiver of Depreciation – OPCF 43 and SEF 43R

By Shaistha Khan

Whether you’ve had your car for a year or five, it “ages” — meaning, it has a depreciation value. There's regular wear and tear, mileage and fuel efficiency, and the make and model year of your vehicle to account for.

While it might not matter in your day-to-day — after all, a few years of car ownership isn’t likely to make a huge difference in driving performance — the value of the car comes into play in the event your car is stolen or deemed a total loss in a collision, your insurance provider will determine the current value of the car after depreciation and pay you according to what it is worth now.

What is car depreciation?

The unfortunate reality of buying a new car is that the moment you drive it off the lot or showroom, it loses value – with some estimating that it depreciates by up to  30 per cent. Your insurance provider can use one of the following ways to calculate your payout.

1. Actual cash value (ACV)

Using this method, your payout would be the current value of the car, minus the deductible. Let's say you bought a new car for $30,000 five years ago, and the deductible on your car insurance is $1,000. If the car is deemed a total loss and the insurance provider estimates the AVC of your car to be $12,000, minus the deductible, your payout would be $11,000.

However, accounting for supply chain shortages and inflationary car prices, the same vehicle might retail for $40,000 today. The obvious disadvantage of this method is that the amount you will receive as a payout is not sufficient to replace your vehicle with a comparable make and model.

2. Replacement cost

Here your payout would either be the original price that you paid for the vehicle, the manufacturer’s suggested retail price (MSRP), or the replacement cost (whichever is lower). So, if you purchased a car for $30,000 five years ago, your payout, minus the deductible, would be $29,000. However, this method is only applicable if you have a depreciation waiver.

Receiving a $11,000 payout on a 10-year-old sedan that has seen better days may seem reasonable, but what if it’s a brand-new car that you’ve had for less than a year?

What is a depreciation waiver?

An optional depreciation waiver endorsement is one way to ensure that you’re able to replace your damaged or stolen car with a new one or a vehicle of otherwise comparable value. Your insurance provider settles your claim for whichever amount is lower: the original price of the vehicle, the MSRP, or the replacement cost of the vehicle.

Most depreciation waivers are applicable for one to three years after the purchase of a new vehicle and do not apply to secondhand or used vehicles. Depreciation waivers also don’t apply to car batteries, tires, or replacement parts.

Bear in mind though, that a depreciation waiver endorsement also means higher premiums on your auto insurance policy.

Limited waiver of depreciation in Ontario – OPCF 43

Ontario Policy Change Forms (OPCF) allow you to change, add, or reduce the amount of coverage on your insurance policy. OPCF 43 in particular removes the insurance provider’s right to deduct depreciation from the value of your automobile when settling a claim for loss or damage.

Limited waiver of depreciation in Alberta – SEF 43R

In Alberta, Standard Endorsement Forms (SEF) also allows you to include or exclude specific coverage for your insurance policy. The SEF 43R stipulates that the waiver does not apply to tires and batteries or replacement parts that have been previously unrepaired. Like the OPCF 43, it only applies to the original purchaser of the automobile and for a duration specified by the insurance provider (typically, one to three years).

In the event of a total loss to the automobile, the SEF43R stipulates that the insurance provider shall pay the policyholder the lesser amount from either the original purchase price, including taxes, when the vehicle was purchased, or the MSRP (plus any taxes).

How much does the OPCF 43 and SEF 43R cost?

Adding the OPCF 43 or SEF 43R endorsement to your auto insurance policy might cost you an additional $50 to $100 on your annual insurance premium. But this can vary according to the insurance provider.

Speak with an insurance broker to see if you may be eligible to add in a depreciation waiver and use Insurance Hotline to find most the affordable insurance coverage for your requirements.

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