What happens to your car insurance if your car is recalled?

Imagine this: After a few months of saving and skimping, you’ve finally scored your dream car – let’s say a Tesla. And then you find out that there’s been a recall over a defective autopilot system, as 193,000 Canadian customers recently discovered.

Tesla said it will send out a software update to fix the problem, and customers can expect to receive notification letters via mail by next month. Beyond the disappointment and having to wait a little longer to use your coveted car, there are other economic considerations to think of: who bears the cost of repair, and to what extent? What car will you use in the interim? And lastly, what happens to your car insurance if your vehicle has been recalled? Will your insurance claim be denied if you missed the recall notice and were involved in a collision because of a faulty part?

What is a vehicle recall?

As per the Motor Vehicle Safety Act, a manufacturer is required to issue a car recall notification if there’s “any defect in the design, manufacture or functioning of the vehicle or equipment that affects or is likely to affect the safety of any person.” Some examples of safety-related recalls are the recent Tesla recalls (where a few deadly crashes were reported) or General Motors’ vehicle recalls (where airbag inflators exploded, causing injury to the driver).

Vehicle recalls can also include non-safety related defects like faulty air conditioners or heaters. One example may be Ford’s failure to include instructions on adjusting or removing the headrest in their instruction manual and having to recall nearly one million vehicles.

However, defective tires, child seats, and sunroofs are the most common reasons a vehicle may be recalled.

How would you know if there’s a recall on your car?

Manufacturers are legally required to notify Transport Canada and then, proceed alerting customers through a mailed letter. If you’re the owner of a second-hand car, your contact information would likely be passed on to the manufacturer or franchised dealer. The Canadian Automobile Association and Carfax both recommend sharing your up-to-date information with car manufacturers or dealers, should they need to contact you.

Related: How much do you need to make to afford a used car in Ontario?

Transport Canada also maintains a database of recalled vehicles, where you can check your vehicle make and model, and active and closed investigations that you can consult before purchasing a used car. They also recommend visiting your manufacturer’s website and running a search using the Vehicle Identification Number (VIN) of your car.

Alternatively, sign up for the Government of Canada’s alerts on safety and recalls.

Irrespective of the severity and risk involved, you should take a recall notice seriously.

There’s a recall issue on your car – what now?

The manufacturer-issued recall notice will provide details on the defect, safety risk, and what you’re required to do. The manufacturer bears the costs of repairs when a vehicle is recalled.

Some issues may require only an “over-the-air" software update (which can be done remotely, like a software error at Tesla). Other recalls may be a little more complex and involve scheduling an appointment with an authorized dealership or mechanic shop.

Once there, be sure to check what parts need to be repaired or replaced and how long repairs may take. A word of caution here – as we’re seeing unprecedented, long wait times for vehicle repairs, you need to think about alternative transport options. In some instances, it's taking up to two months to get a car repaired.

Related: Amid inflation and supply chain shortages, should you delay vehicle repairs?

Consumer Reports recommends contacting the manufacturer directly to check how long the repair may take, and if they may be able to accommodate you with a loaner or rental vehicle in the meanwhile.

What about car insurance rates for a recalled car?

Manufacturing defects or recalls do not affect car insurance rates. However, a collision (caused by vehicle defect or not) will stay on your record for six years, leading to higher insurance premiums.

Let’s look at a few scenarios:

1. You got into a collision because of a faulty part and a recall notice has been issued. However, you missed seeing the recall notice. Or you acted on the recall notice and got the defective part fixed, yet the problem persists. In some cases, the insurer may seek claims expenses from the manufacturer, without any consequence to your insurance rates.
2. You got into a collision because of a faulty part and a recall notice has been issued. However, you ignored the recall notice. Insurance companies expect customers to take all the necessary precautions to keep themselves and their property safe. In this case, you failed to take precautions and may be denied a claim.

Transport Canada estimates that more than six million vehicles on the road have unresolved recalls. Ignoring any recall notices or procrastinating on getting repairs done can prove costly if you get into a collision. Moreover, driving an unsafe vehicle puts not only yours, but the safety of others on the road at risk. It's in your best interest to act on a vehicle recall notice.