New Car Replacement Insurance
If you're about to buy a brand-new car, here's why you might be interested in this coverage.
Written by
Christine Lacagnina has written thousands of insurance-based articles for TrustedChoice.com by authoring consumable, understandable content.
Reviewed by
Paul Martin is the Director of Education and Development for Myron Steves, one of the largest, most respected insurance wholesalers in the southern U.S.
Buying a new car can be a very rewarding experience for many drivers, but it doesn't come without risks. Besides having to consider car depreciation over time, you'll also want to plan ahead in case of an accident that totals your car or the unexpected theft of your vehicle. Without the proper coverage in place before an incident occurs, you could end up having to pay to replace your car all on your own.
Fortunately, an independent insurance agent can help make sure you get all the new car replacement coverage you need. They'll help you select the right policy at the best possible rate available in your area. But for starters, let's break down new car replacement coverage and why you might want to add it to your policy.
What Is New Car Replacement Insurance?
New car replacement insurance is a type of car insurance that will replace your new car with a new vehicle of the same make and model if you get in an accident that totals your vehicle or your car gets stolen within a certain amount of time after buying it. Without this specific coverage in your policy, your car insurance likely won't pay the total amount required to replace your vehicle with a new car of a similar make and model. You must add this coverage to your policy soon after the time of purchase, and an independent insurance agent can help you do that.
What Does New Car Replacement Insurance Cover?
If your new car gets totaled or stolen within a certain amount of time after buying it, your new car replacement insurance covers the money you would need to buy a new car of a similar make and model. Let's say you buy a car worth $45,000. Six months after buying it, you’re involved in an accident, and your car gets totaled. It's now worth $38,000 thanks to car depreciation, but a brand-new version of your car is still $45,000. New car replacement insurance coverage can provide you with the $45,000 needed to repurchase the same car.
What’s the Difference Between New Car Replacement and Gap Insurance?
It’s easy to get these confused, since they both help if you get into an accident shortly after buying a new car. But it's necessary to note a slight difference between the two:
- New car replacement insurance: Insurance coverage that will replace your new car with the same model and year if you total your vehicle or it gets stolen.
- Gap insurance: Insurance coverage that pays the difference in what you owe on your vehicle loan if you total your car. This coverage applies when you owe more than what the vehicle is worth after factoring in depreciation.
An independent insurance agent can further explain the difference between new car replacement coverage and gap insurance and help you add either or both coverages to your policy as they apply to your needs.
How Much Does New Car Replacement Insurance Cost?
Like all insurance, the cost varies depending on the insurance company you choose. New car replacement is always an additional cost on your insurance policy. It also usually requires that you have comprehensive car insurance and collision insurance as well. But as an average figure, you can expect to pay around $300 annually for new car replacement coverage alone.
Just like with overall car insurance, the added cost of your new car replacement coverage will depend on the model of your car, your age and driving history, your credit score, and other insurance policies you have. An independent insurance agent can help you find the best rate and any discounts you qualify for.
Is New Car Replacement Insurance Worth It?
New car replacement insurance is never required. However, your driving history, the model of your new car, and how quickly the cost will depreciate can help determine whether it’s a good idea for you. So you can consider the following:
- If you're concerned about your car getting totaled or stolen within a few years of purchase
- If you have enough put away in savings to easily replace your car with a similar model within a few years if a disaster happens
- How much the coverage would cost you over a few-year period vs. how much it would cost you to buy a new car yourself
- Your car's depreciation estimate, since replacement coverage is more necessary for cars that depreciate more quickly
Determining whether new car replacement coverage is worth it for you is also what independent insurance agents are here to help you with. They’ll do the hard work of researching the costs associated with the risk and let you know the best option.
What Are the Limitations of New Car Replacement Coverage?
Car depreciation is a real factor that causes your car's value to lessen over time. Because of this, new car replacement coverage is typically only offered for a specific period by most insurance companies. Your car's total mileage and age factor into the time this coverage is available. Here are some examples of restrictions from car insurance companies that offer new car replacement coverage.
| Car Insurance Company | Replacement Coverage Limitations |
|---|---|
| Travelers | Only offered if you are the vehicle's original owner and the vehicle is less than 5 years old |
| Nationwide | Only offered if the vehicle is newer than 3 years old |
| USAA | Flat rate of 20% of the vehicle's actual cash value |
Which Companies Sell the Best New Car Replacement Insurance?
An easy way to ruin the joys of owning a brand-new car is to find yourself in an accident without the proper coverage. While many car insurance companies offer new car replacement coverage, only a few can be considered the best. That's why we've found them for you and listed them here.
| Insurance Companies | Average Annual Cost | Carrier Star Rating |
|---|---|---|
| Nationwide | $168 |
|
| Travelers | $299 |
|
| American Family | $98 |
|
| USAA | $294 |
|
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