Replacement Cost vs Actual Value – What Do You Get In a Total Loss Claim?
Is the sled covered for the full replacement cost? Or is it the actual value—which we all know is significantly less the moment a sled rides out the door of a dealership.
So we reached out to our friend Zach Schwingenschloegl, Commerical Account Executive at CapriCMW, for some info on how total loss insurance claims work.
As always, Zach can only speak to how CapriCMW does business. Other insurance agencies may operate differently, so use this information as a guideline rather than a rule.
Replacement Cost or Actual Value in a Total Loss
Mountain Sledder: Okay Zach, so what happens when someone has a total loss of their snowmobile? Is the payout based on the actual value? Or is it based on the replacement cost?
Zach Schwingenschloegl: Let’s say someone goes in and spring checks a brand new machine today, a model year 2020. For next calendar year and the one after that, how the policy works is this: for the first two model years, you can insure the machine for full replacement—not what you paid for it—but what it costs for you to go out and get a brand new one.
So if you bought a 2019 model this year, you could go out and insure it for what it would cost you to go buy a brand new 2020.
MS: Okay, but what about this scenario? Let’s say a guy gets a really screaming deal on a leftover 2019 model. Would he be able to insure his sled for full replacement value, even though he paid significantly less for it because it is almost year old at this point?
ZS: Yes, in those first two model years in the CapriCMW system, you can insure up to the replacement value. That means that if your sled is worth less than replacement value (like your example of a discounted sled from the prior model year) and you’d like to keep your premiums to a minimum, you can change the amount to reflect the lower value if you really want. Or you can keep it insured for up to whatever the current cost of replacement value is.
One point that we like to be clear on, something that affects people in the replacement cost category, is this: if you’re insuring a sled for replacement at $20K, and you have a loss and you decide that you’re just going to cash out and walk away, like you’re done with the sport, then you’re not going to get that $20K, you’re going to get the $14K or whatever it’s actually worth. It’s going to go back to the actual cash value.
The logic behind that is, you’re insuring for replacement—what it will cost you to go out and get a new one. If you’re not going to get a new one, then you’re not actually out that money anymore, you’re only out what your machine was worth. So if you decided to cash out, you’re not going to get a check for $20K that you’re insuring to, you’re going to get a cheque for what your sled was actually worth.
This situation only really applies in the first two model years, because after that we go to actual cash value. In that case, whether you replace it or not, that’s what it’s actually worth. You’re not going to run into any payout difference in the older machines, it’s only going to show in the first two model years—moreso in the 2nd model year than the first.
Sleds Older than Two Model Years
MS: Okay, so what about sleds older than the latest two model years?
ZS: Sleds older than two model years are automatically valued at Canadian Blue Book value, which is built into the system and is updated every quarter. The CapriCMW system knows whether the sled is from within the last two model years or not, so there is no confusion for customers in figuring this out.
MS: So if someone is on your website looking to purchase coverage for a sled that’s older than two model years, the value of it will automatically come up based on Blue Book value of their model, make and year of sled?
ZS: Yes, it will show the Blue Book value, plus tax, of that sled and that is the agreed value.
The nice thing about having Blue Book value built right into our system is that it eliminates a lot of the guessing of value, or using the wrong value. With our old system, there was a lot of guesswork, or some people would leave their replacement value there, and they’d end up paying a premium on a $20K value when their machine was five years old. Things like that.
Now, if you enter a sled from the last two model years instead, you’ll see that the value can be edited to match the actual cost of the replacement value of the sled.
MS: But what if someone has a sled that is older but is in mint condition? Wouldn’t its replacement value be higher than Blue Book? Is there a way that they could insure it for more than Blue Book value?
ZS: The example I’ll give you is one that we had, where a guy went out and bought a brand new side-by-side and literally broke his back the week after he bought it. So it sat in his garage, untouched for three years after he bought it.
After three years he was better enough to go out and use it again, so he went out to insure it—and it’s three years old by then—so we were only going to insure it for Blue Book value. But his SxS was in showroom condition—it had just been sitting in his garage for three years.
So what we recommended was, that he went back to the dealership he bought it from, and they were willing to provide him with a letter that said, ‘Hey, I know this is three years old, however, we would easily give him “X” amount of dollars for it today without even questioning it.’ And we took that letter and were willing to adjust that value up higher than Blue Book based on that letter from the dealership.
So if there are extenuating circumstances, and you can get a letter from an appraiser or a dealership saying, ‘Yes, this is worth more than Blue Book,’ then we’ll honour that and up the insured value for you based on that letter.
So it’s not like you’re stuck to that Blue Book value once you’re outside of those two model years, but you’d have to be able to prove that your machine is worth more to get the insured value increased.
What About Mods and Accessories?
MS: Plenty of mountain riders have either custom mods or added value in accessories or both. Are those covered as well?
ZS: In our system, the next box after value of the machine is ‘Accessories’, and that can always be edited. How it works with the value of accessories is similar to the value of the machine. So for the first two model years of the machine, you can put the full value of the sled’s accessories into the box and be insured for that. Once you’re outside of those two years, you can insure up to 50% of the value of the accessories.
MS: Okay, so let’s say a guy has a three year old sled, and he puts a $4000 turbo on it. He can insure the turbo up to $2000 as well? Why 50%?
ZS: Yes, that’s correct. But the cost of labor is not included, just the parts. If it costs you $4000 to buy it and $1000 to install it, you can insure it for $2000, because that’s 50% of the cost of parts, and it’s older than two model years.
Rather than relying on the ever-changing and differentiating limits of deprecation, we established a standard 50% limit to keep things simple and clear for our clients.
Something I always try to recommend to people is that the policy is replacement up to the number that is insured. So, if a replacement cost goes up to $20K and you’re only insuring it to $18K, you’re not going to get $20K. You’re only going to get up to what number the machine is insured for, so the onus is on people to know what number they’re insuring for.
This factor plays in especially on renewal, because if you buy a brand new sled, most likely you’ve bought it from a dealership and you’ve got the bill of sale so you’re pretty confident in your number. But when you renew your policy the next year, if you leave the number the same, that might not reflect what it costs to actually buy a brand new machine the next year due to inflation, price going up or whatever.
So when you renew, I always recommend that people give a call to their dealership and ask them what it would cost to replace their machine today—maybe it’s gone up by $1000 or $2000.
Insurance policies are very particular, and it can be difficult for the layperson to understand exactly how coverage works in the unfortunate event of a total loss. Thanks Zach, for helping us navigate the waters of insurance and understand the difference between replacement cost and actual value in the total loss of a snowmobile.
CapriCMW offers free quotes for Off Road Vehicle Insurance on their website.