- New car replacement insurance covers the cost of buying a new vehicle if your old car is totaled.
- New car replacement coverage is purchased as an add-on to a standard policy, increasing premiums by 5-10%.
- New car replacement insurance is best for cars that depreciate quickly.
According to Carfax, a brand-new car's value can plummet over 10% in the first month and will keep dropping from there. After one year of ownership, your car is typically worth 20% less than when you drove it off the lot. This means if an accident were to happen, standard insurance may only cover the car's depreciated value, leaving you with a financial gap.
One way to protect yourself depreciation is by adding new car replacement insurance to your standard policy. In short, new car replacement insurance pays for a new vehicle of the same make and model if your previous one is totaled, and there's no deduction for depreciation. If you just bought a new car that depreciates quickly or simply wants to protect your investment, new car replacement insurance is worth considering.
Here's everything you need to know about new car replacement insurance and whether it's right for you.
How New Car Replacement Insurance Works
New car replacement insurance is typically only available for new cars within a specific age limit. For example, Liberty Mutual Insurance requires your vehicle to be less than one year old and have less than 15,000 miles to be eligible for coverage. Farmers auto insurance, on the other hand, will replace your car within the first two model years and 24,000 miles.
If you qualify for coverage, new car replacement insurance will cover the value of a brand-new car with the same make and model, minus your deductible, if your vehicle is totaled due to an accident, theft, or other covered event. A deductible is the amount you must pay out-of-pocket before your insurance policy starts paying.
Note that most insurers will require you to purchase collision and comprehensive coverage before you can buy new car replacement insurance as an add-on.
Benefits of New Car Replacement Insurance
Here are a few reasons why you may want to consider buying new car replacement insurance.
1. Protection Against Depreciation
One of the biggest advantages of new car replacement insurance is that it covers the total cost of replacing your car without factoring in depreciation. This means if you bought your car at $70,000 and it has depreciated to $57,000 at the time of a total loss, the insurer will still reimburse you for the $70,000 (minus the deductible) instead of the lower, depreciated value.
2. Peace of Mind
Another perk of having new car replacement insurance is the peace of mind it gives you in case an accident damages your vehicle beyond repair. Since the policy covers the cost of replacing your car with a new one of the same make and model, you don't have to worry about paying a huge chunk of change out of pocket.
3. Simplified Claims Process
Since your insurer doesn't have to factor in depreciation, you may experience a simpler and more straightforward claims process with new car replacement insurance.
Cost of New Car Replacement Insurance
New car replacement insurance isn't free, it's an optional add-on to your standard auto insurance policy. How much it costs depends on your insurance company and the factors below:
- Vehicle Value: More expensive cars will typically have higher premiums since they're more costly to replace.
- Coverage Limits: Higher coverage limits will also increase the cost.
- Deductible: A higher deductible, the amount you pay out of pocket before your insurance starts to pay, can lower your premium.
- Driving Record: A clean driving record can help you get better rates since insurers see you as less risky.
Generally, new car replacement coverage increases your insurance policy cost by around 5% to 10%. This means if you pay $2,000 per year for your car insurance, you can expect to pay around $100 to $200 extra for new car replacement coverage.
Is New Car Replacement Insurance Worth It?
It depends. Adding new car replacement insurance to your policy can be worth it if your car depreciates quickly. It could also make financial sense if you think you won't be able to afford to pay the difference between the actual cash value of your vehicle and its original value out of pocket — assuming you want to replace your car with a brand-new one.
Before purchasing this extra coverage, consider how much you're willing to pay for the add-on. Ask yourself: does the security and financial protection that the new car replacement insurance provides outweigh the cost of extra premiums? If you need help deciding, talk to an insurance agent to discuss your options.
Another coverage option worth considering besides new car replacement insurance is gap insurance. Gap insurance, also known as guaranteed asset protection or guaranteed auto protection insurance, covers the difference between the car's value and the loan balance but doesn't pay for a car. In other words, if you owe more on your car loan than your vehicle is worth when your car is totaled or stolen, gap insurance will cover that remaining amount you owe. Gap insurance is optional, but some lenders and lessors may require it if you finance or lease a car.
Where to Get New Car Replacement Insurance
Many major auto insurance companies offer new car replacement insurance coverage, so start by asking your current insurer if they have this insurance.
If your current insurer doesn't offer new car replacement insurance, it may be time to switch car insurance providers. Shop around and compare quotes from different insurers to find the best rates. Additionally, peruse our list of the best auto insurance companies to narrow down your options.
New Car Replacement Insurance FAQ
How long does new car replacement coverage last?
It depends. Some insurers only offer new car replacement coverage during the first year of ownership, while others may extend to two or three years.
What if my car is stolen and not recovered?
If your car is stolen and not recovered, your auto insurance can replace it, but only if you have comprehensive coverage. However, they won't help you pay for a brand-new car unless you have a new car replacement add-on.
Can I get new car replacement insurance on a used car?
No. You typically can't get new car replacement insurance on a used car since most insurers require your vehicle to be under a certain age and that you're the original owner.
