Replacement Vehicle Insurance: What's Covered?

New car replacement insurance covers the cost of replacing your vehicle with a brand-new car of the same make and model if your car is written off or stolen within the first few years of its life. This type of insurance is designed to protect you from the financial hit of depreciation, which can see cars lose more than 10% of their value in the first few months of ownership.

It is important to note that new car replacement insurance is not a standard feature of car insurance policies and is usually purchased as an add-on. It is also worth noting that not all insurance companies offer this type of cover, and those that do may have different eligibility requirements. For example, some insurers will only provide new car replacement cover for vehicles that are less than two years old, while others will cover vehicles up to five years old.

New car replacement insurance covers the cost of a brand-new car of the same make and model

Replacement vehicle insurance is an optional add-on to your car insurance policy that covers the cost of replacing your vehicle with a brand-new car of the same make and model if your car is declared a total loss. This type of insurance is especially useful if your car is new, as cars can lose over 10% of their value in the first few months of ownership and over 20% in the first year.

New car replacement insurance

New car replacement insurance is a form of insurance available only to drivers of brand-new cars. If your car is totalled in an accident within a few years of buying it, new car replacement insurance will cover the cost of a brand-new car of the same make and model. This type of insurance usually costs extra and is only available if you also buy collision and comprehensive coverage.

Example scenario

Let's say you buy a brand-new car for $30,000 and add new car replacement coverage to your insurance policy. A few months later, your car is totalled in an accident. At the time of the accident, your car is valued at $24,000. If your insurance policy covers this type of incident, standard insurance would pay you $24,000, but new car replacement coverage will pay you the cost of buying a brand-new car of the same make and model (minus your deductible).

Cost

The cost of new car replacement insurance depends on various factors, including your car's purchase price and where you live. It typically adds about 5% to 13% to the price of your comprehensive and collision coverage. For example, if your comprehensive and collision insurance costs $100 a month, you'd pay an extra $5 to $13 a month for new car replacement coverage.

Providers

Not all insurance companies offer new car replacement insurance, and it may not be available in all states. Some providers that do offer this type of insurance include:

• Erie Insurance
• Liberty Mutual
• Allstate
• Farmers Insurance
• American Family
• Amica
• Auto-Owners
• NJM Insurance
• Safeco Insurance
• Travelers

It is only available for brand-new cars

Replacement vehicle insurance, or 'new car replacement insurance', is an optional type of auto insurance that pays out for a brand-new vehicle of the same make and model if your car is written off or stolen. This type of insurance is designed to protect against depreciation, which can be as much as 10% in the first few months of ownership and over 20% in the first year, according to Carfax.

New car replacement insurance is only available for brand-new cars. This is because it is designed to protect against the steep depreciation that occurs in the first few months and years of a car's life. Eligibility requirements vary depending on the insurance company but generally, the car must be less than one or two years old, with some policies covering vehicles up to five years old. Mileage is also a factor, with eligible cars needing to have travelled fewer than 15,000 to 24,000 miles.

Some insurance companies will also require that you are the original owner of the vehicle and that it is not leased.

Other Requirements

In addition to the age and mileage requirements, new car replacement insurance usually requires that you have comprehensive and collision coverage on your vehicle. You will also need to purchase the coverage within a certain timeframe, which varies depending on the insurance company.

Cost

The cost of new car replacement insurance varies depending on the insurer, the driver, the vehicle, and the state. On average, it costs around 5% of your auto insurance premium but can be as high as 13%.

New car replacement insurance is worth considering if you've just bought a new vehicle, especially if it's a model that depreciates quickly, such as a luxury or electric car. It could also be a good option if you wouldn't be able to afford to pay for a new car out of pocket if your new vehicle was written off or stolen.

However, it's important to remember that you will still need to pay your deductible, and the insurance won't cover certain other costs.

It is more expensive to insure a higher-end car with replacement insurance

Replacement vehicle insurance, also known as new car replacement insurance, is an optional coverage that can be purchased on top of the liability insurance mandated by the state. It is meant to protect your investment in a new car by providing financial protection against depreciation. In the event of theft or an accident that totals your vehicle within the first year of ownership, or before you reach a certain mileage limit (often 15,000 miles), 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 in contrast to regular auto insurance, which would only pay out the depreciated value of the vehicle at the time of the accident.

The cost of replacement insurance varies depending on the insurance company and the specific policy. It typically costs about 5% of the total coverage amount, but this can range from 5% to 13% depending on the insurer. For example, Farmers Insurance charges an additional 5% to 13% of the price of comprehensive and collision coverage for their new car replacement insurance. However, some companies like Shelter include new car replacement coverage at no extra cost, while others bundle it with a package of upgrades.

When it comes to insuring a higher-end car with replacement insurance, there are a few things to keep in mind. Firstly, luxury cars tend to depreciate faster than standard vehicles. According to a 2022 study by ISeeCars, luxury cars and electric cars depreciate the fastest, with brands like Maserati and BMW depreciating by more than 50% over five years. This means that the financial protection offered by replacement insurance is even more valuable for owners of higher-end cars, as they are more likely to owe more on their car loan than the depreciated value of the vehicle.

Additionally, the cost of insuring a luxury car is generally higher than that of a standard vehicle. The high price of a luxury car leads to higher insurance costs. For the models included in one survey, the average annual insurance premium for a luxury car was about 18% higher than the cost of insuring a moderately priced sedan. The specific make and model of the luxury car also affect the insurance cost, with some vehicles being more expensive to insure than others. For example, the Mercedes-Benz CLS-Class has a higher list price and insurance premium than the Audi Q5.

Furthermore, some insurance companies may have specific requirements or limitations for insuring higher-end cars with replacement coverage. For instance, Farmers Insurance's new car replacement insurance only applies to cars within the first two model years and 24,000 miles. Other companies may have similar restrictions on the age and mileage of the vehicle. It's important to carefully read the fine print and understand the limits of the policy before purchasing replacement insurance for a higher-end car.

In conclusion, while replacement insurance can provide valuable financial protection for any car owner, it is particularly beneficial for those insuring higher-end cars. The faster depreciation and higher insurance costs associated with luxury vehicles make replacement insurance a worthwhile investment for those seeking to minimize their financial risk in the event of an accident or theft. However, it's important to consider the specific requirements and costs associated with replacement insurance for higher-end cars before making a decision.

It is not offered by all insurance companies

New car replacement insurance is not offered by all insurance companies. Some of the largest auto insurance companies, including Geico, Progressive, State Farm, and USAA, do not offer this type of insurance. Additionally, new car replacement coverage may not be available in all states, even from insurers that do offer it.

Among the companies that do offer new car replacement insurance, there are variations in the eligibility requirements and coverage details. For example, some companies require the vehicle to be less than a certain age, typically one or two years old, and have a mileage limit, usually under 15,000 or 24,000 miles. Other companies may offer coverage for a longer period, such as up to three or five years after purchasing the vehicle.

It is important to carefully review the terms and conditions of new car replacement insurance before purchasing it. The eligibility requirements and coverage limits can vary significantly between insurance providers. Some companies may also bundle new car replacement coverage with other packages or upgrades, which can affect the overall cost.

While new car replacement insurance can provide valuable protection against depreciation, it is important to weigh the benefits against the additional cost. This type of insurance is typically offered as an add-on or optional coverage, and the cost can vary depending on factors such as the vehicle's purchase price, location, and the specific insurance company.

You must have comprehensive and collision coverage to be eligible

To be eligible for replacement vehicle insurance, you must have comprehensive and collision coverage. This is because replacement vehicle insurance is an add-on coverage that supplements your existing comprehensive and collision insurance.

Comprehensive insurance covers damage to your vehicle caused by something other than a collision. This includes damage from fire, theft, vandalism, windstorms, floods, falling objects, etc. It does not cover mechanical breakdown, normal wear and tear, or maintenance.

Collision insurance, on the other hand, covers damage to your vehicle caused by physical contact with another vehicle or object, such as a tree, guardrail, or building.

Both types of coverage are optional and not required by state law. However, they are typically required if you have a car loan or lease. This is to protect the lender or leasing company in case of an accident. If you own your car outright and have the financial resources to replace it if needed, you may not need comprehensive and collision coverage.

When purchasing replacement vehicle insurance, you will need to select a deductible. The deductible is the amount you will be responsible for paying if you file a claim. A higher deductible will result in a lower insurance premium, while a lower deductible will result in a higher premium.

It's important to note that replacement vehicle insurance is not offered by all insurance companies and may not be available in all states. Additionally, there may be eligibility requirements based on the age and mileage of your vehicle. Be sure to read the fine print and understand the limits and exclusions of the policy before purchasing.

Frequently asked questions