How Does New Car Replacement Insurance Work?

New car replacement insurance reimburses you for the cost, minus your deductible, of buying a brand-new version of the same make and model of your vehicle if it’s totaled. It isn’t available from all insurers, but it can help protect against depreciation—if your insurance company offers it and you’re eligible for coverage.

To qualify for new car replacement coverage, you typically need to meet the following conditions:

• You must be the original owner. New car replacement coverage isn’t available for leased vehicles.
• Your vehicle must meet the insurer’s age and mileage requirements.
• You must purchase coverage within the timeframe established by the insurance company.
• You must maintain comprehensive and collision coverage on your vehicle.

What Happens if Your Car Is Totaled?

If an accident leaves your car totaled, the insurer typically writes you a check for what the car is worth at the time of the accident. You can use the money to buy a new car. However, the insurance payout may not cover the total replacement cost because vehicles depreciate so quickly.

For example, let’s say you buy a new car for $35,000 and get in an accident several months later. At the time of the accident, the value of your vehicle is $31,000. If you don’t have new car replacement coverage, the insurance company will reimburse you $31,000—the vehicle’s depreciated value—minus your deductible. But if you have new car replacement coverage, the insurer will pay you enough to get a brand-new version of the totaled car.

How Much Does New Car Replacement Insurance Cost?

Like other types of car insurance coverage, the cost for new car replacement insurance varies depending on multiple factors, including the car you drive, where you live, your driving history, age, and more. Rates may also vary among insurers, so shopping around and comparing multiple car insurance quotes is a good idea.

Insurance Companies That Offer New Car Replacement Insurance

Below is a list of insurance companies that offer new car replacement insurance, but availability may vary by state. To find out if an insurer offers coverage where you live, contact the provider to confirm availability.

• Acuity: You may purchase new car replacement coverage if your car is no more than two model years old. However, you can receive benefits until the renewal date after your vehicle is five model years old. Coverage only applies if your car is totaled in an accident.
• Allstate: Cars that are two years old or newer may qualify for new car replacement coverage.
• American Family: Cars can be no more than one year old to qualify for new car replacement coverage.
• Amica: New car replacement coverage is available for vehicles less than one year old with fewer than 15,000 miles.
• Cincinnati: You may purchase coverage within 30 days of buying your car if it has fewer than 1,000 miles.
• Erie: New car replacement coverage is available for cars that are two years old or newer.
• Farmers: Vehicles that are two years old or newer and have 24,000 miles or less may qualify for new car replacement coverage.
• Liberty Mutual: New car replacement coverage is available on cars with fewer than 15,000 miles that are less than one year old. Coverage applies to vehicles stolen or totaled within the first year of ownership.
• Safeco: Coverage is available for original owners who have cars that are less than one year old with fewer than 15,000 miles.
• Shelter: Cars bought in the past 12 months with fewer than 15,000 miles are eligible for coverage.
• Travelers: New car replacement coverage applies during the first five years of ownership. To qualify, the vehicle must be the current or future model year when you purchase it.

Is New Car Replacement Insurance Worth It?

New car replacement coverage can provide extra peace of mind when buying a car, but you must decide whether the added cost is worth the comfort it brings. Here are a few questions to ask to help you decide:

• How much will coverage cost?
• How quickly is the car expected to depreciate and by how much?
• Do you have an auto loan you must continue repaying if your car is totaled?
• Can you afford to replace your vehicle without new car replacement coverage if it’s totaled soon after buying it?

If you opt to purchase new car replacement coverage, some insurance companies automatically remove it from your policy when you’re no longer eligible for benefits. If yours doesn’t, set a reminder to cancel when the insurer will no longer cover the loss, so you don’t pay for expired coverage.

The Bottom Line

While new car replacement insurance helps protect against depreciation, it may not be right for everyone. If your car has a history of maintaining its value, you may decide to skip the extra coverage, but if it loses value faster than average, it may be worth the added cost. Getting an estimate from a vehicle valuation website or online automotive marketplace of how quickly your car’s make and model tends to depreciate can help you make an informed decision.

Insurers in most states may use credit-based insurance scores to help determine your premium. If you decide new car replacement coverage is right for you, check your free credit score before applying to see how it may affect your rate.