Jane Dotson
Auto replacement insurance is an optional add-on to your car insurance policy that can help you get a newer car in the event of a total loss. If your car is stolen or written off in an accident, regular insurance will only pay out the depreciated value of your vehicle at the time of the incident. However, auto replacement insurance will cover the cost of buying a brand-new vehicle of the same make and model, or a newer car with more features. This type of insurance is especially useful if you want to avoid the financial loss associated with your car depreciating quickly after purchase.
| Characteristics | Values |
|---|---|
| What is auto replacement insurance? | Extra protection against depreciation, specifically for new vehicles. |
| When does it apply? | If your new car is stolen or totaled in the first year, or before you reach a certain number of miles. |
| What does it cover? | The cost of buying a brand-new vehicle with the same make and model, minus the deductible. |
| Who is it for? | Customers insuring vehicles that are less than a year old, with less than a certain number of miles, not leased, and with comprehensive and collision coverage. |
| Benefits | Protect your recent vehicle purchase, get money for a replacement car of the same model year, avoid replacing your car with an older model, and prevent financial loss associated with owing more than your car is worth. |
| Cost | Depends on factors such as the new car's purchase price, location, and other considerations. Typically adds about 5-13% of the price of comprehensive and collision coverage. |
| Alternatives | "Better Car Replacement" insurance offers a replacement car that is one model year newer and has 15,000 fewer miles. |
What You'll Learn
New car replacement insurance
When your new car is stolen or totaled in an accident within the first year of ownership, regular auto insurance will pay you the depreciated value of your vehicle at the time of the incident. However, new car replacement insurance will pay you the amount it costs to buy a brand-new vehicle of the same make and model, minus your deductible. This is especially helpful if you would prefer to replace your almost-new-but-totalled vehicle with a brand-new one.
Who Is It Right For?
New car replacement coverage is recommended for customers insuring vehicles that are less than a year old, have less than a specified number of miles on them (usually 15,000), are not leased, have comprehensive and collision coverage, and have had no previous owners.
The cost of new car replacement insurance varies depending on factors such as the purchase price of your new car, where you live, and other considerations. For example, Farmers Insurance states that the cost of this coverage typically adds about 5% to 13% of the price of your comprehensive and collision coverage. On the other hand, some insurers include new car replacement coverage at no extra cost, while others bundle it with a package of upgrades. Therefore, it is essential to compare car insurance rates to get an accurate price.
New Car Replacement vs. Better Car Replacement
If your vehicle is over a year old, you may not be eligible for new car replacement coverage. However, some companies offer ""newer car replacement" or "better car replacement" policies, which will replace your vehicle with a car that is one model year newer and has fewer miles.
New Car Replacement vs. Gap Insurance
While new car replacement insurance helps you buy a new car, gap insurance ensures you can pay off the old one. Gap insurance covers the difference between the value of your totaled or stolen car and the amount remaining on your loan or lease, minus any deductible. It is important to understand the terms and conditions of both types of coverage before deciding which one is right for you.
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Gap insurance
When you buy or lease a new car, it starts to depreciate in value immediately. Standard auto insurance policies typically only cover the depreciated value of the car, which can leave a gap between the amount covered by insurance and the amount you still owe on your loan or lease. This is where gap insurance comes in. It covers the difference between the depreciated value of your car (which your standard insurance will pay) and the amount you actually owe on it. This can be especially important if you've only made a small down payment or have rolled over negative equity from an old loan, as you may owe more than the car is worth.
For example, let's say you finance $30,000 for a new car. After a few years, you've been making all your payments, but the car's value has decreased to $20,000. However, you still owe $25,000 on your loan, leaving a gap of $5,000. If your vehicle is totalled or stolen, your standard insurance would only pay you $20,000 (minus your deductible). With gap insurance, you would receive the full $25,000 needed to pay off your loan.
It's important to note that gap insurance doesn't cover other property or injuries resulting from an accident, nor does it cover engine failure or other repairs. Additionally, it may not cover additional charges related to your loan, such as finance or excess mileage fees. Gap insurance is typically offered by car insurers and dealers, and it can usually be added to your existing auto insurance policy for a small annual fee.
While gap insurance is not required by law or by any insurer, it can provide valuable financial protection in the event of an accident or theft. It is particularly useful if you owe more on your car than it is currently worth and want to protect yourself from the financial impact of depreciation.
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Better car replacement insurance
If your car is deemed a total loss, better car replacement insurance will ensure you get a replacement car that is one model year newer with 15,000 fewer miles on the clock. This is an optional add-on coverage that is right for policyholders who want to protect their newer vehicles in the event of a total loss and for those who would prefer to upgrade their vehicle in such an event.
For example, if your car is a 2019 model with 35,000 miles on the clock, your insurance company will give you the money for a 2020 model with 20,000 miles. This type of insurance helps you to fend off your old vehicle's depreciation in the event of a total loss. It also means you can avoid owing more money on your totalled car than it is worth.
The cost of better car replacement insurance varies depending on your age, address, make of car and more. An agent for Liberty Mutual in Southern California said that adding better car replacement insurance can raise the price of a basic policy by as much as 40%.
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Deductibles
When it comes to auto replacement insurance, deductibles are an important factor to consider. A deductible refers to the amount of money you are responsible for paying out of pocket when filing a claim before your insurance company covers the remaining costs. In the context of auto replacement insurance, deductibles typically apply to collision coverage and comprehensive coverage.
Collision coverage helps pay for the repairs or replacement of your vehicle when it is damaged in a crash involving another vehicle or a stationary object. Comprehensive coverage, on the other hand, covers damages to your vehicle in situations other than a collision, such as hail, theft, or damage from falling tree limbs.
When choosing an auto insurance policy, you usually have the option to select your deductible amount. The deductible can range from $250 to $2,000, with $500 being the most common choice. A higher deductible will result in a lower insurance premium, while a lower deductible will lead to a higher premium. For example, if you choose a deductible of $1,000, you will pay less each month for your insurance, but if you need to file a claim, you will have to pay $1,000 out of pocket before your insurance company covers the remaining costs.
It is important to note that deductibles are applied to each claim you make. Additionally, if your repair costs are less than your deductible, you will be responsible for covering the entire cost of the repairs yourself. Therefore, when selecting a deductible, it is crucial to consider your financial situation and choose an amount that you would be able to pay comfortably in the event of an accident.
Some insurance companies offer disappearing deductible programs, where your deductible amount decreases or is waived if you go a certain period without filing a claim or having a violation. This can provide additional savings and peace of mind for careful drivers.
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Cost of insurance
The cost of auto replacement insurance varies depending on several factors, including the age and value of the vehicle, the driver's details, and the state of residence.
Some insurers include auto replacement coverage at no extra cost, while others offer it as an add-on to a package of upgrades. The cost of this add-on is typically around 5% to 13% of the price of your comprehensive and collision coverage. For example, if your comprehensive and collision insurance costs $100 per month, you might pay an additional $5 to $13 per month for auto replacement coverage.
The cost of auto replacement insurance is also influenced by the specific terms and conditions of the policy. For instance, some policies may only cover vehicles for the first year or a specified number of miles, while others may offer coverage for a longer period.
It's important to note that not all insurance companies offer auto replacement insurance, and the availability of this coverage may vary by state. Therefore, it is recommended to compare quotes from multiple providers to find the best deal for your specific situation.
Additionally, when considering the cost of auto replacement insurance, it's worth comparing it with the alternative of actual cash value (ACV) coverage. ACV takes depreciation into account and reimburses you for the depreciated value of your vehicle at the time of the loss. This option may be more affordable, but it may not provide sufficient coverage if you want to replace your vehicle with a new one.
In summary, the cost of auto replacement insurance depends on various factors, and it's important to carefully review the terms and conditions, compare quotes from different providers, and consider the alternative options to make an informed decision.
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Frequently asked questions
Auto replacement insurance is an optional add-on to your regular insurance that covers the cost of replacing your vehicle with a brand-new vehicle of the same make and model, rather than just covering the depreciated value of your old vehicle.
If your vehicle is deemed a total loss within the first year of ownership, or before you reach 15,000 miles, auto replacement insurance will pay you the amount it costs to buy a brand-new vehicle of the same make and model, minus your deductible.
The cost of auto replacement insurance varies depending on factors such as the purchase price of your vehicle, where you live, and other considerations. Some insurers charge a percentage of your comprehensive and collision coverage as an additional cost, while others include it as part of a package of upgrades.
