This is one of the oldest adages in the automotive industry. Thousands of dollars go down in value the moment you pull your new car out of the parking lot. A new car loses about 20% in value in the first year of ownership. So if your car is involved in an accident or stolen, will your insurance only pay for depreciation?
Not always. If you have replacement insurance, you will receive a down payment sufficient to purchase a new vehicle of the same make and model, minus any deductibles. So is new car replacement insurance worth it?
What is new car replacement insurance?
New vehicle replacement insurance is an optional coverage that you can purchase in addition to your state-mandated liability insurance.
Generally, new car replacement insurance only applies if the car is less than two years old or less than a certain mileage (up to 15,000 miles, or the average mileage most people drive in a year). Some insurance companies also require collision and collision damage waivers to purchase new vehicle insurance for replacement.
The cost of this insurance is usually around 5% of the total coverage. So if your insurance is $1,000 a year, the new car portion of your coverage adds about $50.
In the event of vehicle theft or complete theft, the depreciation of the vehicle is usually paid by the insurance. But with new car replacement coverage, the check gets bigger. In fact, buying the exact same car you lost should be enough.
How does new car replacement insurance work?
Let’s say you bought a new 2019 Honda Civic Sport for $22,000. Please purchase new car insurance. Six months later, you get a T at the intersection and the insurance adjuster declares your car’s total.
Without new car replacement insurance, the amortized market value of the car is approximately $19,000 (minus the deductible). However, with his new car replacement insurance, he could get a check close to the $22,000 he paid for the car (again, minus the deductible), and he’d buy another 2019 Honda Civic Sport. is enough.
Where can I buy new car insurance?
Not all companies offer new car replacement insurance options. Here are some features:
- Allstate: Allstate is for vehicles 2 years and younger.
- Ameriprise – New Vehicle Replacement Coverage within 1 year of ownership.
- Erie – This supplier is for vehicles less than 2 years old. If the car he has owned for more than two years, Ellie will bear the cost of replacing it with an equivalent model after he has two years.
- Farmers – Farmers covers vehicles for the first two years or 24,000 miles.
- The Hartford – This provider covers your vehicle for the first 15 months or 15,000 miles, whichever comes first.
- Liberty Mutual – This coverage can be obtained for less than 15,000 miles for the first year.
- Traveler – This covers the original owner’s first 5 years of the vehicle. This includes gap coverage.
You won’t find new auto replacement insurance for some big companies like Geico and State Farm.
New car replacement insurance vs.
Gap insurance is similar, but these types of coverage are not the same and usually pay for each separately. Learn the difference between new car replacement insurance and gap insurance.
Safe Gap stands for Assured Asset Protection. We provide the funds you need to pay off your car loan, not the cost of buying a new car. In other words, it covers the difference between the car’s actual present value (ACV) and the amount you owe for the vehicle.
So let’s take another look at the 2019 Honda Civic Sport.He got a loan to buy the car and is now $21,000 in debt. Without new car replacement or off-duty insurance, his ACV on the car would be about $19,000 minus the deductible. That means he has to pay $2,000 more than he received.
Gap Insurance gives you an additional $2,000 to pay off your loan.
Both mean you are likely to receive a higher payment if you buy a new car, but a new car swap means you can buy a new car with your payment. Gap Insurance gives you what you need to pay off your old loan.
Is new car insurance a good deal?
Only you can decide if auto insurance is worth it. Here are some factors to consider:
- Your financial situation: If buying that new car costs you almost every penny you own, you may want to skip anything that exceeds your state’s minimum insurance requirements. However, remember that you are at risk of potential accidents involving your vehicle.
- Accident probability: If you only drive a few miles for work or shopping, or if the traffic is light, you are less likely to have a car-wrecking accident and less likely to need new car replacement insurance.
- The cost of your car and its depreciation: Some cars, such as sports cars, depreciate faster than others. If your car is rapidly declining in value, we recommend that you purchase new replacement auto insurance.
- Type of car you drive: Cars that depreciate slowly, like Toyotas and Volvos, retain their value for the first few years. The check you get from your insurance company after a total loss accident will be expensive even if you don’t replace it with new car insurance.
If you can afford new car insurance and your insurance company offers it, it’s usually a good idea to add that coverage. No one wants to think that a new car can be a total loss right after you buy it, but if that’s the case, you can get more out of it with new car replacement insurance.
Frequently Asked Questions
How much does car insurance cost?
The cost of buying a new car varies from person to person, so please consult with your insurance agent.
If I buy a used car, can I get new car reinsurance?
Not normal. Most insurance companies require you to be the first new car owner to purchase this policy. If so, consider getting gap insurance to help pay off the balance of your auto loan in the event of an accident.
Do I need to buy new car insurance when I buy a car, or can I buy it later?
Some companies allow you to purchase anytime during the first year or other term. For example, at Nationwide, any time within his first six months of owning the car before the accident is added to the policy.