Should You Buy New Car Replacement Insurance?
Last Updated on
New car replacement insurance is a special type of insurance policy offered by some companies. It can significantly reduce your financial burden after a serious collision. Today, we’re helping you decide if new car replacement insurance is worth it.
What is New Car Replacement Insurance?
New car replacement insurance will buy you a brand new vehicle after an accident. If your car is totaled in a collision, then new car replacement insurance will replace your vehicle with one of the same make and model.
Why would you get new car replacement insurance? Well, if your car has ever been totaled in an accident, then you know the disappointment of getting a check for your totaled car. Insurance will pay for the value of your vehicle – but it’s always less than what you paid for your car in the first place. In many cases, the insurance payout is too little to buy an adequate replacement car.
Obviously, the value of a new car declines significantly the moment you drive it off the lot. You might have paid $45,000 for a brand new truck, for example, but insurance will only pay you $32,000 if that truck gets totaled in a collision next month.
That’s where new car replacement insurance can help. It’s a special option offered by some insurers. If your car is totaled in a collision, then this policy will pay for a brand new car of the same make and model of the totaled vehicle, minus the deductible.
Regular Collision Insurance Versus New Car Replacement Insurance
When shopping for insurance policies, you’ll have the option of picking regular collision insurance and new car replacement insurance.
Collision insurance is your standard auto insurance. If you’re in a collision, insurance will pay for your damages (minus the deductible), up to the total value of the vehicle.
New car replacement insurance, meanwhile, eases your financial pain by paying for a brand new car of the same make and model as the totaled vehicle.
In general, new car replacement insurance will:
- Cost more than ordinary insurance
- Apply only to newer cars
- Is available only when you buy collision and comprehensive insurance
- Reimburses you for the cost of a new vehicle of the same make and model, minus the deductible, if your car is totaled in a collision
Which Companies Offer New Car Replacement Insurance?
New car replacement insurance is a relatively new phenomenon. Not all American insurance companies offer it.
Of the major insurance companies, Allstate, Farmers, Liberty Mutual, Nationwide, and Travelers all offer new car replacement insurance. American Family, GEICO, Progressive, State Farm, and USAA do not currently offer new car replacement insurance.
The companies that do offer new car replacement insurance have different rules regarding how it can be used. Here are some of the basic rules you need to know about:
- Allstate: Only available on vehicles that are 2 model years old or newer
- Farmers: Only available on vehicles that are 2 model years old or newer with fewer than 24,000 miles
- Liberty Mutual: Only available on cars less than 1-year-old with fewer than 15,000 miles
- Nationwide: Available (through Allied) on vehicles that are up to 3 model years old
- Travelers: Available on vehicles that are in their first five model years; does not cover a stolen car or cars damaged by fire or flooding
You Should Also Consider Better Car Replacement
Some insurance companies have started offering something called “better car replacement”, which reimburses you for the same car but one model year newer. It doesn’t necessarily buy you a brand new car, but you’re always getting a better car.
Better car replacement policies are typically available on a wider range of cars than new car replacement policies.
Liberty Mutual’s better car replacement, for example, is available for cars of any age. If your car gets totaled, then Liberty Mutual will buy a vehicle that’s one model year newer with 15,000 fewer miles than the newer car.
Conclusion: Is New Car Replacement Insurance Worth It?
The cost of new car replacement insurance varies by driver, vehicle, and state. Typically, these policies will add about 2% of the collision insurance or 5% of the comprehensive insurance price onto your vehicle. If you’re paying $500 for a year of collision coverage and $500 for a year of comprehensive coverage, then the average cost of new car replacement insurance would add $45 a year to your car insurance bill.
However, quotes vary widely between companies, so make sure you request a quote and understand what’s covered. Many people believe new car replacement insurance is worth it when buying a new vehicle, but it’s not the right choice for everyone – especially if you want to pay a lower monthly insurance rate.