Buying a new car is thrilling. Nothing beats getting behind the wheel of a brand new car, from the relaxing smell to the high-tech features.
Even expensive new wheels depreciate as soon as you drive them off the lot. CarFax says a car’s value might drop by over 10% in the first few months and over 20% in the first year.
In an unfortunate event, if you total your car soon after purchase, depreciation often results in a lower value than the purchase price. Some auto insurance companies replace new cars to cover the difference.
You may wonder if the extra cost is worth it; here is what you need to know to decide if it’s right for you.
Insurance to replace a new automobile – what is it?
If your car is completely damaged, new car replacement insurance will pay you for a brand new car of the same company and model.
Assume you paid $40,000 for a new car and obtained new car replacement insurance. After a few months, the automobile is worth $36,000, and you get into an accident, totaling it. With new car replacement insurance, you’d get a new model of the same automobile, not just $36,000.
Not having new car replacement insurance means paying the difference if you wish to buy a new automobile of the same model.
Other information regarding new car replacement insurance:
- Coverage is available with collision and comprehensive coverage. Replacement automobile insurance is usually available as an add-on to collision and comprehensive coverage.
- To qualify for new car replacement insurance, your car must be at least three years old. The qualifications for eligibility differ per insurance company. For example, Ameriprise Auto & Home’s New Automobile Replacement Insurance endorsement covers a new car for the first year or 15,000 miles. However, you must be the first owner and purchase the car with less than 1,000 miles on it.
- Some companies provide “better” car replacement insurance. This type of new car replacement insurance pays for a “newer” or “better” model. For example, if you own your automobile for less than two years, Erie Insurance will reimburse you for the expense of replacing it with a newer model year. If you’ve had it for two years or longer, Erie will replace it with a model two years newer.
- A deductible is required. Generally, your deductible is your out-of-pocket cost. For example, if your claim is for $20,000 and your deductible is $500, you pay $20,000, and the insurance company pays $19,500.
Limitations on New Car Replacement Insurance
While policies differ, there are a few general guidelines:
- Buy windows. Insurance companies may set a deadline for buying new car replacement coverage. For example, Nationwide requires six months of coverage after a new automobile purchase while Erie Insurance allows you to add New Auto Security to your policy in the event of a collision.
- Gap insurance and new car replacement cannot be combined but you can buy both new car replacements and gap insurance. If your car is crashed in an accident, gap insurance compensates the difference between your lease or loan sum and the car’s real cash worth.
Auto insurance companies that replace new cars
Not all insurers offer new automobile replacement insurance, and it may not be accessible in all states.
Some firms that provide new automobile replacement insurance include:
- AARP Auto Insurance from The Hartford gives new car replacement coverage if your automobile is wholly damaged within the first 15 months or 15,000 miles (whichever comes first).
- Allstate‘s new car replacement insurance covers cars up to two model years old. It covers a new automobile for the first year or 15,000 miles with Ameriprise Auto & Home.
- Erie Insurance’s New Auto Security; with this coverage, you can replace autos under two years old. If you used your car for more than two years, you’d get paid for a newer model.
- Farmers: Farmers will replace your automobile for the first two model years and 24,000 miles.
- Horace Mann provides both new and improved car replacements and The Educator Advantage Program offers free new car replacements for educators.
- Liberty Mutual: Your car must be under a year old and have less than 15,000 miles on it for Liberty Mutual to replace it. They also offer better car replacement insurance, covering a car one model year newer and 15,000 miles less.
- Metlife covers a new automobile if your old one gets any damage within the first year or 15,000 kilometers (whichever comes first).
- Nationwide new car replacement insurance pays for vehicles under three years old.
- Travelers: Traveler’s “Premier” new car replacement program replaces a totaled car with a similar brand and model.
Do I need to replace my new car?
If you just acquired a new car, consider new car replacement insurance. Because your car depreciates swiftly once you drive it off the lot, this policy may be a cost-effective way to maintain its value if you are in an accident and it gets any damage.
You can examine your situation by comparing the current worth of your car on NADA guides to your purchase price. You would be liable for the difference between the two numbers if you didn’t have replacement coverage.
Remember that the period and mileage for new car replacement coverage will vary by the insurance company. Liberty Mutual will cover cars under a year old, while Travelers covers cars up to five years old.
According to a 2019 ISeeCars.com survey, luxury and electrified automobiles depreciate the fastest, for example, Maseratis and BMWs degrade quickly, but Jeeps and SUVs keep their worth well. If you bought a high-depreciation car, consider new car replacement insurance. While new car replacement insurance isn’t inexpensive, it may be worth it if your new car is totaled.