New Car Replacement Insurance: What It Is and How It Works
- New car replacement insurance pays eligible car owners the full replacement value of a new car if it’s totaled, which can help protect against depreciation.
- Not all vehicles are eligible for new car replacement coverage. For instance, it’s usually only available if you’re the original owner and during the first few years of ownership.
- New car replacement insurance is not the same as gap insurance, which pays for the difference between car loan balance and what your car is worth.
How does new car replacement insurance work?
When you buy a new car, it’s natural to worry about what happens if that car is totaled
Because cars can depreciate quickly, your car’s ACV may be significantly less than its purchase price. That’s where new car replacement insurance can come in handy.
New car replacement helps pay for the full value of your car if it’s totaled, not considering depreciation. If you experience a total loss, this allows you to replace your vehicle based on what you paid for your totaled car, minus your deductible
How to qualify for new car replacement coverage
New car replacement coverage typically has eligibility requirements. You may need to add it soon after buying a new car, and mileage limits often apply. For example, some insurers only cover vehicles with fewer than 15,000 miles.
To qualify for new car replacement, full coverage is also usually required. That means you must also carry:
- Collision coverage, which helps pay to repair your car when you are at fault in the accident or if you hit a stationary object, like a light pole
- Comprehensive coverage, which helps pay for damage to your car caused by things outside of your control, like acts of nature, theft, vandalism and hitting an animal
New car replacement is not available from every insurer. You’ll need to shop around to find the best option for you.
What does new car replacement insurance cover?
New car replacement insurance typically covers your vehicle in the event that your car is totaled, and it’s important to understand both when it applies as well as when it doesn’t.
What it may pay for
In general, if your vehicle is declared a total loss and you have new car replacement coverage, your insurance may cover the cost of a new car of the same or similar make and model, minus your deductible. This can help you avoid the financial hit from depreciation.
Keep in mind that this coverage may work slightly differently from carrier to carrier, so it’s important to carefully read your policy paperwork for specifics.
What it usually does not cover
New car replacement insurance usually won’t apply in the event of anything short of a total loss. For example, it won’t cover things like:
- Wear and tear
- Accident damage that doesn’t constitute a total loss
- Mechanical breakdowns
- Applicable deductibles
New car replacement insurance vs. gap insurance
New car replacement insurance is not the same as gap insurance, though they both apply in the event of a total loss. Gap insurance helps protect you if you have an upside-down car loan. This happens when you owe more than the actual value of the car.
New car replacement and gap insurance solve different problems, but carrying both may be useful if you have a financed car. To help you decide, here’s a quick overview of what they each pay and when they can help.
| Coverage | What it helps pay | When it may be useful |
|---|---|---|
| New car replacement insurance | The total cost of replacing your car with the same make and model, minus your deductible | If your new car is totaled and its depreciated value isn’t enough to buy a comparable new car |
| Gap insurance | The difference between your car’s depreciated value and your car loan balance | If your vehicle is totaled and you owe more on your loan or lease than the vehicle is worth |
Is new car replacement insurance worth it?
Whether or not it makes sense to get new car replacement insurance depends on several factors, from your car to your finances to the policy’s cost and terms. If you do pursue this type of policy, comparing the endorsement’s cost, eligibility period, deductible and replacement terms are vital.
It may be worth considering if you:
- Bought a brand new car (especially if you financed it)
- Are worried about depreciation due to the car’s model
- Want the same or similar car if yours is totaled
It may be less useful if you:
- Have a car that doesn’t qualify for this coverage
- If you can afford to replace your car without the extra coverage
- Are OK with a smaller payout because of depreciation
From a LendingTree expert
When deciding whether to carry new car replacement coverage, use a car depreciation calculator to see how your make and model tends to hold its value. The faster your car depreciates, the harder it may be to find a comparable replacement with your insurance payout after a total loss.
Which car insurance companies offer new car replacement coverage?
The availability, eligibility requirements and coverage names for new car replacement can vary by insurer as well as your location. In general, you can best confirm these options via quotes, with an agent or within the policy documents.
| Company | General eligibility requirements |
|---|---|
| AAA
Please note that AAA calls its new car replacement coverage “enhanced total loss replacement.”
| Coverage depends on titling, purchase, loss occurrence time period and mileage requirements |
| Allstate | Car may need to be two years old or newer to qualify |
| American Family | Car must be brand new and totaled within the first year of ownership |
| Farmers | Car must be within the first two model years and have 24,000 miles or less on the odometer |
| Liberty Mutual | Car must be within the first year of ownership and have 15,000 or fewer miles |
| Travelers
Please note that Travelers offers new car replacement as part of a package called “premier new car replacement.” That also includes gap insurance and a glass deductible.
| Car must be within the first five years of ownership |
| USAA
Please note that USAA calls its new car replacement coverage “car replacement assistance.”
| The vehicle can be any age, and you don’t have to be the original owner, but you must own or have financed the car to qualify |
How much does new car replacement insurance cost?
The cost of new car replacement insurance will vary depending on which insurer you choose, your car’s make and model, and where you live. That’s why it’s generally best to compare quotes or ask an agent or representative how much it would cost to add this coverage to a policy.
How to get new car replacement insurance
Getting a policy with new car replacement coverage can be broken down into a few steps:
- Seek carriers that offer the coverage and pick a few to compare. Even if your current insurer offers this coverage, it’s a good idea to shop around to find the best deal.
- Make sure your car meets coverage requirements. While some insurers may share certain details about what qualifies for this type of coverage, not all do. Either way, carefully looking at eligibility requirements can help you further narrow things down.
- Compare quotes. Be sure to look beyond the replacement coverage. Coverage limitations, price and customer service can all have a major impact on your ability to access the types and amounts of coverage that matter most to you.
Keep in mind that this type of coverage is often limited to a certain timeframe after purchase. So it’s important to move quickly if you want this coverage.
Frequently asked questions
No. A typical full coverage policy (which has both comprehensive and collision coverages) only covers the actual cash value of a car at the time of being declared a total loss. That means the policy only pays out based on what the car is worth, after depreciation. New car replacement does not consider depreciation and instead pays out the car’s purchase price.
It can be. New car replacement only applies if a vehicle is totaled, and that can include if it’s stolen and is not recovered.
Typically no. New car replacement almost always requires your car to be a newer purchase and it often requires you to be the original owner to qualify.
In general, new car replacement would be paid out to your lender if you don’t own it outright. Then, you would receive what is left over, meaning you’d still have to buy a new car if you needed a vehicle.