New Car Replacement Coverage: Everything You Need to Know

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    Getting behind the wheel of a new car can be an exciting moment, and it’s even better if you are secure in the knowledge that you’ve got the best car insurance for your situation. You want to protect your new car from any damage and to know that if the worst happens, you’ll be able to cover any repairs or replace the car with a similar model if it’s totaled.

    Car insurance is mandatory in all but one state (New Hampshire) in the U.S., but you still have a lot of flexibility in tailoring your coverage to work for your circumstances. Once you’ve met your state’s minimums, you’re free to purchase additional coverage as you wish or stick to the cheapest car insurance.

    That’s where amendments, or add-ons, can help you out. Amendments such as new car replacement insurance can save you thousands of dollars in the event of an accident. This amendment, which is meant for cars that are one or two years old, allows you to receive a higher amount in a claim situation. Let’s take a closer look at how it works.

    How does new car replacement work?

    New car replacement coverage isn’t mandatory — it’s an amendment you can get for an additional small cost to add to your policy. Many, but not all, insurance companies offer it, though they restrict its purchase to those who have cars that are fairly new. Talk to your insurance provider if you’re interested in it; they can answer your questions on how this affects the cost of your car insurance and sign you up for it.

    The reason for new car replacement coverage is simple: if your car is totaled in an accident, your collision or comprehensive coverage, if you have it, will cover it. But these policies will only pay you what the car is worth at the time of the accident.

    Cars start depreciating — losing value — as soon as you drive them off the lot. Your one-year-old car is probably worth thousands less than you paid for it originally, and that lesser amount is what you’ll get from your insurance company unless you have new car replacement coverage.

    If you have the new car replacement amendment, however, you’ll receive a claim check that will enable you to purchase the same car as you had, or one that is similar, even if the cost is higher than the actual cash value of your totaled car.

    Let’s say you were in an accident that totaled your 2019 Honda Civic, which you paid $25K for. Now, a year after you bought it, it might only be worth $18K on the open market, and that’s what you would get in a claim on your collision or comprehensive insurance, minus your deductible. With new car replacement coverage, you’d get closer to the $25K.

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      What does new car replacement cover?

      Simply speaking, new car replacement coverage covers you for the cost of a new car if you suffer the loss of your late-model car through an accident, theft or another mishap such as a tree falling on it. Your insurer will factor your deductible into that, so if you have a $500 deductible, that cost will be subtracted from the money you receive.

      New car coverage is only available from insurers for those who have cars that are fewer than one or two years old. Some offer it instead for cars that have low mileage, such as under 15,000 miles. You’ll also probably need to have collision and comprehensive coverage on your car to qualify for new car coverage. Your agent can let you know if that’s a requirement of your insurer.

      For all the details on new car coverage, talk to an agent or customer management staffer at your insurance company because the requirements differ from company to company. Some companies, such as Allstate, for example, will replace your vehicle if it’s two or fewer model years old. Others, such as Liberty Mutual, will only replace cars that are one year old or newer.

      New car replacement insurance is different from gap insurance. Gap coverage is another type of add-on you can get that will pay the difference between your car’s depreciated value and what you owe on the car’s loan so you’re not left paying for a car that you no longer own after an accident. New car replacement, on the other hand, is designed to get you behind the wheel of a similar car as quickly as possible, regardless of what you owe on the totaled vehicle.

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      Is new car replacement coverage worth it?

      Possibly. The answer to that question is up to you and depends on your circumstances. If you are on a tight budget and need to watch every penny, know that replacement car insurance does cost an additional amount over what you’d pay for your basic state-mandated insurance. A good insurance agent or online quote tool can tell you how much it will add to your premium.

      However, if you are in an accident that totals your new-ish car, you could pay thousands of dollars over what your claim nets you when you go to buy a new car because of the car’s depreciation. To make the new purchase less painful for your wallet, having replacement car coverage is a good idea.

      Consider how likely you think it is that you’ll be in an accident. If you have a new driver in your household, for example, it’s worth considering, because roughly 43 percent of first-year drivers are involved in car crashes, making them the most likely age group to have an accident.

      Consider your safety record too. If you’ve taken driver safety courses and have a clean driving record, you may want to skip this type of insurance because you know you’re safe — although anyone can be involved in a car accident caused by weather conditions or other drivers.