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What exactly is new car replacement coverage?
A new car replacement is a type of supplemental coverage that pays to replace a totaled vehicle with one of a similar make and model.
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Key Takeaways
If your car is totaled, your insurance company will usually pay you the car's actual cash value.
The ACV may not be sufficient to cover the cost of replacing the vehicle.
Your new car replacement coverage will pay to replace your totaled vehicle with an equivalent model.
No one wants to total their car, but it does happen. Typically, if your car is totaled — That is, if your insurance provider has suffered so serious damage, your loss is a total — your insurer will pay you what is known as the actual cash value for your car.
The actual value of your car's cash or ACV may be hundreds of thousands of dollars less than what you first paid for, meaning it will not be sufficient for a similar make and model, especially when it is new.
New car substitution insurance comes into play here. This is a type of additional car insurance coverage which will cover you as much as you can in order to replace your car with a similar model. New vehicle substitution coverage is usually only available to vehicles under a certain period of time, although the specifics vary according to the supplier. This article contains the following sections:
What is the procedure for obtaining new car replacement coverage?
Following an accident, your insurance company will usually report a complete loss to your car if its repair costs are close to or higher than the value of the car (a car will also be declared a total loss if it has been stolen). Your country may also set a general loss threshold, meaning that if the damage exceeds a certain proportion of its pre-accident value, the vehicle must declare a total loss.
Your totaled car will be covered if you have collision and comprehensive coverage. However, as previously stated, your insurer will pay out the ACV of your vehicle, which may not be enough to replace it with an equivalent vehicle.
Cars lose value quickly, so if you total a car you purchased days, weeks, or months ago, the ACV your insurer will pay out could be thousands of dollars less than what you paid for it. Your insurer will pay you enough to replace your vehicle with a comparable newer if you add new car replacement cover to your policy.
Is it worthwhile to purchase new car replacement coverage?
New car replacement coverage is more expensive than other types of optional coverage — the exact cost varies depending on your vehicle, but it could cost you an extra $120 per year.
Furthermore, new car replacement coverage is typically only available if you are the original owner of a vehicle that is less than one or two years old. If you want to keep your monthly car insurance premiums low, you may want to forego this coverage.
Still, if you're willing to pay a little more each month for the peace of mind that you'll be able to replace your current car if it's totaled, new car replacement could be a good option.
Where can I obtain new car replacement insurance?
Most major car insurance companies, including Allstate, MetLife, Safeco, Acuity, Liberty Mutual, and Travelers, provide some form of new car replacement coverage. However, the specifics of this type of coverage vary by provider.