Posted by New Car Replacement Insurance offers reimbursement for the purchase of a brand-new vehicle identical to your current one, deducting only your deductible in the event of a total loss rather than compensating you based on the depreciated value of your car. According to Carfax, vehicles can experience a depreciation of more than 10% within the initial months of ownership and up to 20% within the first year.
To illustrate, suppose you acquired a new car for $40,000 and opted for new car replacement coverage. If, after some time, the car’s value depreciates to $36,000 and it is involved in an accident resulting in a total loss, the insurance provider would cover the cost of a new vehicle of the same make and model, not limited to the depreciated value of $36,000. Without this coverage, you would be responsible for the shortfall if you purchased a new vehicle of the same make and model.
How Does New Car Replacement Insurance Work?
Let’s delve into a hypothetical situation to elucidate the workings of this insurance type. Imagine diligently saving and working towards owning your dream car, a Mercedes-Benz E-Class E 350 4MATIC, costing approximately $60,000, embodying luxury and comfort beyond measure.
However, a few months later, a collision with a pickup truck results in your prized possession being declared a total loss, with its current value estimated at $53,000 by your insurer. Despite being unharmed, you face the prospect of having to tap into your savings to replace your beloved vehicle with an identical new one.
In contrast, had you secured new car replacement insurance, your insurer would have covered the entire cost of acquiring a new Mercedes-Benz E-Class E 350 4MATIC, deducting only your deductible, and ensuring a seamless transition without financial strain.
Insurance Providers offering New Car Replacement Insurance
Not all insurance companies provide new car replacement insurance, and availability may vary by state among those that do offer it. Below are some insurers known for offering new car replacement coverage.
AARP Auto Insurance from Hartford
offers new car replacement insurance for vehicles totaled within the first 15 months or 15,000 miles.
Allstate
provides new car replacements for vehicles up to two model years old.
American Family:
Covers brand new cars, replacing them with the same make and model if totaled, with automatic removal after one year.
Amica:
Includes new car replacements in their Platinum Choice Auto package for vehicles under a year old with fewer than 15,000 miles.
Auto-Owners:
Replaces new cars with the same make and model if totaled.
Erie Insurance:
The Auto Security plan replaces cars less than two years old with the newest model or reimburses for a comparable model two years older.
Farmers:
Offers new car replacement within the first two model years and 24,000 miles.
Horace Mann
provides new car replacements as part of the Educator Advantage Program.
Liberty Mutual:
Covers new cars under one year old and with less than 15,000 miles, also offering better car replacement for a newer model.
Nationwide:
Replaces vehicles less than three years old.
NJM Car Insurance:
Replaces new cars with less than 15,000 miles if totaled within 12 months.
Safeco:
Covers original owners of cars less than one-year-old and with fewer than 15,000 miles.
Travelers:
Offers “premier” new car replacements for vehicles totaled within the first five years of ownership.
Benefits of New Car Replacement Insurance:
- Protection against Depreciation: It safeguards you from losing money due to the rapid depreciation of a new vehicle.
- Peace of Mind: Even if you don’t use it, this coverage provides peace of mind knowing you can replace your car without significant financial burden.
- Relatively Inexpensive: While it adds to your insurance cost, it may be less than the depreciation rate of a new vehicle over the first few months of ownership.
Determining the Need for New Car Replacement Insurance
If you’ve recently purchased a new vehicle, it may be beneficial to consider new car replacement insurance. Given the substantial depreciation that occurs immediately after driving off the dealership lot, this coverage can serve as a cost-effective method to safeguard your car’s value in the event of an accident resulting in a total loss.
To evaluate the relevance of this insurance, you can compare your car’s current value using platforms like J.D. Power to the purchase price. The difference between these figures represents the potential financial responsibility you would bear without replacement coverage.
It’s important to note that the eligibility requirements for new car replacement coverage vary among insurance providers. For instance, while Liberty Mutual offers replacements for vehicles under one year old, Travelers extends coverage to cars up to five years old.
Luxury and electric vehicles, known for their rapid depreciation, are prime candidates for this insurance, as highlighted in a 2022 study by iSeeCars. Brands such as Maserati and BMW exhibit accelerated depreciation rates, whereas Jeeps and SUVs tend to retain their value more effectively.
According to the study, the average vehicle depreciated by 33.3% between 2017 and 2022. Although new car replacement insurance comes at an additional cost, individuals concerned about depreciation may find value in securing this coverage to protect against total loss scenarios involving their new vehicles.
FAQs
Who is New Car Replacement Right for?
New Car Replacement coverage is recommended for customers insuring vehicles that are less than one year old, have less than 15,000 miles, are not on a lease, have comprehensive and collision coverage, and have had no previous owners.
What are the benefits of a new car replacement?
The benefits of New Car Replacement include protecting your recent vehicle purchase through the first year of ownership, getting money for a replacement car that’s the same model year as your totaled car, avoiding replacing your car with an older model of lesser value and avoiding the financial loss associated with owing more money on your car than it is worth.
How does new car replacement coverage work?
If you have New Car Replacement coverage and your new vehicle is totaled within the first year of ownership, the coverage will pay you for the amount it will cost to purchase a new car with the same make and model as your totaled vehicle. This ensures that you can replace your almost-new-but-totaled vehicle with a brand-new one without taking a significant financial hit.