New Car Replacement Insurance: What It Covers & When You Need It
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Many vehicle owners try to reduce insurance costs by limiting coverage options and other add-ons, such as gap insurance. However, new car replacement insurance is a coverage you should consider. This add-on policy protects against the total financial loss of your vehicle should an accident occur.
Standard insurance policies pay out based on your vehicle's actual cash value (ACV), taking depreciation into account. New car replacement car insurance covers the cost of a brand-new car, less your deductible. This guide will delve into the specifics of this insurance policy, provide a list of insurance carriers that offer it, and help you decide if it is worth the extra cost.
What Is New Car Replacement Insurance?
New car replacement insurance is a replacement cost value (RCV) policy. It protects the vehicle owner against financial losses associated with depreciation. This is particularly valuable in total loss events, such as theft or major collisions.
Unlike other policies, including collision coverage, that use ACV to calculate payout, replacement coverage covers the vehicle's purchase price.
Did you know new cars depreciate about 30 percent over the first two years and an additional 8 to 12 percent every year after that? While a traditional policy may help you afford a replacement vehicle, the age and quality of that vehicle depend on the depreciation of your current car. With car insurance for a new car replacement, you can rest easy knowing you can purchase a new vehicle following a total loss event.
How Does New Car Replacement Insurance Differ From Comprehensive and Collision?
Collision and comprehensive coverage are standard policies offered by any auto insurance company. Collision insurance covers damage to your vehicle resulting from a collision with another car or object. It pays for repairs, less the deductible, regardless of who's at fault — though remember, accident forgiveness can protect against policy increases.
Comprehensive insurance covers damages to your vehicle not related to a collision. Common covered perils typically include:
- Animal damage
- Natural disasters
- Theft
- Vandalism
Note that coverage limits and deductibles significantly affect what either of these policies will pay out.
New car replacement insurance differs from collision and comprehensive coverage. It is one of several add-ons or optional coverages typically reserved for vehicles under three years old. The insurance for the new car replacement covers various events, including collisions and thefts.
The most significant difference between the policies is coverage scope. New car replacement policies pay for a new car without factoring in depreciation. Still, most insurers require you to have collision and comprehensive coverage before purchasing replacement coverage.
Top Insurers Offering New Car Replacement Insurance
There are several companies offering insurance after you've totaled your car. The top insurers with new car replacement insurance are (in alphabetical order):
- AARP/The Hartford
- Allstate
- Ameriprise
- Farmers Insurance
- Liberty Mutual
- MetLife
- Nationwide Insurance
- Progressive Insurance
- Safeco Insurance
- State Farm
- Travelers Insurance
The best company for you depends on several factors and relies on individual assessments.
Eligibility Requirements for New Car Replacement Insurance
New car replacement insurance is only for specific vehicles. In most cases, to qualify for the policy, you must be the original owner. Also, the car must be relatively new, usually within the first year or two of ownership.
Some insurers may have mileage restrictions. For example, an insurance company might require a vehicle has less than 15,000 miles to qualify. Beyond these stipulations, most insurers require vehicle owners to have collision and comprehensive coverage and that the car is not a lease.
Cost Factors and How New Car Replacement Insurance Is Priced
Several cost factors influence the price of replacement car insurance. The four most applicable are:
- Vehicle value: The vehicle's original purchase price is the primary factor. More expensive cars result in a higher premium.
- Age and condition: While the policy is for new vehicles, insurers usually allow a window of one to three years to qualify for the policy. The exact age and mileage will contribute to premium calculations.
- Risk assessment: Some cars are riskier than others. Insurers assess vehicles based on safety ratings and susceptibility to theft to determine premiums.
- Insurance company policies: Every insurer has its own underwriting guidelines and pricing models. These policies lead to variations in premiums across insurers.
Beyond these factors, other typical considerations can affect price. For example, every insurer considers location, driving habits, and the make and model of the car before offering a policy quote.
How Claims Work With New Car Replacement Insurance
New-for-old replacement car insurance is a policy for a very specific event: a total loss. A "total loss" usually means repair costs exceed a certain percentage of the ACV, so in effect the car is not worth repairing.
The claims process starts with a "total loss" determination from the insurance company. Once your insurer determines your vehicle is totaled, it will begin verifying your eligibility for a new car replacement. If everything checks out, it will calculate the cost of a new vehicle of the same make, model, and trim level as your totaled car.
Depending on your coverage and car, the claim settlement may provide enough money to purchase a newer model year than your car. If not, the coverage should provide enough to buy a brand-new comparable vehicle.
New Car Replacement vs. Gap Insurance: What's the Difference?
New car replacement insurance pays for a new car if yours is totaled. Gap insurance pays the difference between the amount you owe on your vehicle and its ACV.
Get the Best Coverage for Your New Car — Explore Insurance Options Now!
Worrying about car insurance after an accident is too late. You want to ensure your interests are protected before accidents occur. Check out the free EverQuote comparison tool to research new car replacement insurance and other policies and find the right one for your needs.