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Before you drive a new car off the dealership’s lot, you may want to consider new car replacement insurance.
Say your car – your new baby – has been stolen or involved in an accident. Comprehensive and collision insurance, both typically required for the life of a car loan, will pay up to the value of the car, less any deductible.
But as new vehicles quickly lose value, that claim check will be less than what you paid for the car, leaving you in a financial bind with no trip.
New car replacement insurance, an option with some insurers, offers financial pain relief. It pays the value of a new car of the same make and model, less the deductible, if your car is declared a total loss.
” MORE: How to buy a new car
New car replacement insurance in general:
- Additional costs.
- Applies to newer cars only.
- Only available if you purchase Collision and All Perils insurance.
Who offers new car replacement insurance?
New car replacement insurance is not available everywhere. Some of the largest auto insurance companies in the country, including Geico, Progressive, State Farm, and USAA, don’t offer it. And among the companies that offer it, new car replacement coverage may not be available in all states.
These companies describe their policies online. But others may also offer new car replacement coverage, so be sure to check with your insurer.
How much does new car replacement insurance cost
Prices vary by driver, vehicle, and state, so some companies don’t provide cost details.
To give a rough idea, Travelers says its new car replacement coverage, which also includes gap insurance and a lower deductible for glass claims, adds about 5% to the policy price. So if your Travelers policy costs $ 100 per month, you will pay an additional $ 5 per month to add new car replacement coverage.
Some insurers, including Concord Group and Shelter, include new car replacement coverage at no additional cost; other companies associate it with a set of upgrades.
The only way to get an accurate price is to get quotes from insurers.
How much does new car replacement insurance pay
New vehicles start to lose value before the smell of the new car wears off. Consider a Honda Accord EX purchased new in 2017 for the sticker price of $ 26,530. On average, 2017 Honda Accords lost 22.2% of their original value in the first year, according to Edmunds, the automotive and purchasing information platform.
If an accident totaled the Accord at one year, regular collision insurance could pay $ 20,640 – the amortized value – less the policy deductible.
In comparison, if the car had been covered by a new car replacement policy, the insurance could pay $ 27,470, less the deductible. This is the sticker price of a similar 2018 Honda Accord.
New car replacement vs better car replacement
If you do not drive a new car, replacement coverage may not be available to you. But you may be able to get “newer car replacement” or “better car replacement” policies from some companies, including:
- Liberty Mutual.
Liberty Mutual’s optional best car replacement coverage, for example, will pay you the value of a car that is a newer model year and has 15,000 miles less than your total vehicle. It is available for cars of all ages.
New car replacement vs gap insurance
While new car replacement insurance can help you buy a new car, gap insurance is designed to make sure you can pay off the old one.
If your car is totaled or stolen and your collision or all peril insurance does not cover what you owe on the loan or rental of the car, the gap insurance pays the difference less any deductible. Prices vary, but gap coverage typically costs a few dollars a month, according to Esurance.
Before purchasing gap insurance or new car replacement coverage:
- Understand the terms and conditions. Depending on the insurer, gap coverage may be available for more years than new car replacement coverage – beneficial if you have a loan.
- Get quotes to compare the costs of gap insurance and new car replacement coverage, especially if you owe more than the car is worth.
- If you are skipping the replacement or new car replacement coverage, make sure you have enough savings to pay off a lender if the car is totaled up and make a down payment for another car.
If you opt for new car replacement insurance, be sure to cancel it once your car has passed the age limit or mileage specified by your insurer. Otherwise, you could end up paying for expired coverage.