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Understanding New Car Replacement Insurance

New cars start losing value the moment you drive them off the lot. According to a 2022 study by iSeeCars.com, the average new car depreciates by about 17% in the first three years. If you’re in an accident shortly after purchasing a new vehicle, a standard auto insurance policy will only cover the car’s current market value, not the price you paid. This leaves you to cover the difference for a replacement. New car replacement insurance, however, provides the funds to buy a new car of the same make and model, minus your deductible and certain other costs. Here’s what you need to know.

How Does New Car Replacement Insurance Work?

New car replacement insurance reimburses you for the cost of buying a brand-new version of your vehicle if it’s totaled, minus your deductible. Not all insurers offer this coverage, but it can protect against depreciation if your insurance company does and you qualify.

Eligibility Requirements

• You must be the original owner.
• Your vehicle must meet the insurer’s age and mileage requirements.
• Coverage must be purchased within the insurer’s specified timeframe.
• You must maintain comprehensive and collision coverage on your vehicle.

New Car Replacement vs. Gap Insurance

Gap insurance covers the difference between your vehicle’s depreciated value and what you owe on your loan or lease. It’s useful if your car is declared a total loss and you owe more than its worth. However, gap insurance won’t help you buy a new car, whereas new car replacement insurance will.

New Car Replacement vs. Better Car Replacement

If your car is too old or has too many miles to qualify for new car replacement coverage, better car replacement can help. This coverage pays to replace your totaled car with a newer version, usually one to two years newer, depending on the insurer.

What Happens if Your Car Is Totaled?

If your car is totaled, the insurer typically writes you a check for its value at the time of the accident. Without new car replacement coverage, this amount may not cover the cost of a new car due to depreciation. With new car replacement coverage, the insurer pays enough to get a brand-new version of the totaled car.

Cost of New Car Replacement Insurance

The cost of new car replacement insurance varies based on factors like the car you drive, your location, driving history, age, and more. Rates also vary among insurers, so it’s wise to shop around and compare quotes.

Insurance Companies Offering New Car Replacement Insurance

Here are some insurance companies that offer new car replacement insurance. Availability may vary by state, so contact the provider to confirm.

• Acuity: Available for cars no more than two model years old.
• Allstate: Available for cars two years old or newer.
• American Family: Available for cars no more than one year old.
• Amica: Available for cars less than one year old with fewer than 15,000 miles.
• Cincinnati: Available within 30 days of purchase for cars with fewer than 1,000 miles.
• Erie: Available for cars two years old or newer.
• Farmers: Available for cars two years old or newer with 24,000 miles or less.
• Liberty Mutual: Available for cars less than one year old with fewer than 15,000 miles.
• Safeco: Available for original owners with cars less than one year old and fewer than 15,000 miles.
• Shelter: Available for cars bought in the past 12 months with fewer than 15,000 miles.
• Travelers: Available during the first five years of ownership for current or future model year cars.

Is New Car Replacement Insurance Worth It?

New car replacement coverage can provide peace of mind, but you need to decide if the added cost is worth it. Consider the following:

• How much will coverage cost?
• How quickly is the car expected to depreciate?
• Do you have an auto loan to repay if your car is totaled?
• Can you afford to replace your vehicle without this coverage?

If you choose to purchase new car replacement coverage, some insurers automatically remove it when you’re no longer eligible. If not, set a reminder to cancel it when the coverage expires to avoid paying for expired coverage.

The Bottom Line

While new car replacement insurance helps protect against depreciation, it may not be right for everyone. If your car maintains its value well, you might skip the extra coverage. However, if it depreciates quickly, it could be worth the cost. Use a vehicle valuation website to estimate how quickly your car’s make and model depreciates to make an informed decision.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help!

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