All About New Car Replacement Coverage
Last Updated on December 25, 2020
When you purchase a car insurance policy, there are a number of different coverage add-ons that you can choose from. New car replacement coverage is one policy type that many insurers offer. A new car is a big investment, and this coverage add-on can give you the peace of mind you need to drive your new vehicle around town. Here’s what you need to know about new car replacement coverage on your insurance policy.
What Is New Car Replacement Coverage?
When you purchase a new car, it begins depreciating immediately. This means that as soon as you start driving, your car will immediately be worth less than you paid for it. If you were to get into an accident or otherwise incur damage to your car, your insurance payout wouldn’t cover the initial cost of the car.
New car replacement coverage addresses this problem. This type of coverage will pay you for the entire cost of the new car if it is totaled or stolen within a certain period of time. This can vary depending on your insurance company, but it usually lasts at least a few years after your initial purchase.
This new car replacement coverage is only available to those that have comprehensive coverage or collision coverage. Comprehensive and collision coverage are not required by state law, but are generally very beneficial for most drivers. Collision coverage pays for your damages if you are involved in any collision, while comprehensive coverage pays for other types of damage like vandalism or weather damage.
Not every company offers new car replacement coverage, so you will need to check with your insurer to see if this option is available to you. Some of the largest car insurance companies in the US, such as Progressive, GEICO, and State Farm don’t actually offer it. However, there are many other insurers, both regional and national, that do offer this type of coverage.
How Much Does New Car Replacement Coverage Cost?
The cost of new car replacement coverage isn’t standard across insurers. This means that the only real way to find out how much this coverage costs is to get a quote from your insurer. For many insurers, it could add over $100 to your premium each year. This is a significant extra expense, so it’s worth considering and budgeting for when selecting your car insurance plan.
This type of coverage could be a flat rate added to your insurance premium, or it could be a percentage of the cost of your comprehensive and collision insurance. Each insurance company has its own method for calculating the cost of this add-on.
When getting any new car insurance policy, you should always get a quote from multiple insurers. Since each insurance company has its own method for calculating premiums, you could end up paying much less with one insurance company for the exact same policy. When shopping, be sure to ask about the cost of add-ons like new car replacement coverage so you know exactly how much you will be paying in total. Don’t hesitate to let insurers know you’re shopping around – they might be more inclined to give you a deal.
Do I Need New Car Replacement Coverage?
Not everyone needs new car replacement coverage, but there are many situations where it’s worth considering. If you’re purchasing a brand new car, the financial benefits of having new car replacement coverage are typically worth the extra expense. Buying a brand new car outright is a huge investment, so this extra coverage will give you the protection and peace of mind that you need. Additionally, you might consider getting new car replacement coverage on a new policy for a car that’s less than two years old. Even if you’ve already had the car for some time, it may qualify for this additional financial protection if it’s under a certain age.
However, there are also many situations where you may not need new car replacement coverage, or won’t qualify for it. If the new car you purchased wasn’t very expensive, you may not want to make your monthly premiums higher by adding on new car replacement. To qualify for new car replacement coverage, you will also typically have to be the original owner of the car – it can’t be a used car. You will also need to have collision and comprehensive insurance in order to get new car replacement coverage. If you’re wanting to stick to bare-bones car insurance with low premiums, new car replacement coverage likely will not be for you.
There are also alternatives to new car replacement coverage that might be worth considering. If you have a loan or a lease out on your car, you may want to get gap insurance instead. Gap insurance will pay the remainder of what’s owed on your loan or lease if your car is totaled. This protects you financially because you won’t have to worry about continuing to pay a lender for a car you can’t use.
Some insurance companies also offer an add-on called ‘better car replacement’ or ‘newer car replacement’. This add-on is very similar to traditional new car replacement coverage, but you don’t need to have a brand new car to use it. You can have a car of any age, and this coverage will typically pay the cost of a comparable make and model that’s a year or two newer. If your car is on the older side but would still be very expensive to replace, this coverage could be for you.
Final Word on New Car Replacement Coverage
New car replacement coverage is just one of many add-ons you may see while shopping for insurance coverage. These add-ons can help you customize your coverage to meet your needs. Insurance is very important for protecting both you and the drivers around you while you’re on the road. A new car is a big investment, so this add-on could give you the peace of mind you need for a brand new vehicle.