There is nothing more exciting than the day you buy your first car, after saving for months to pay the dealer fees. Then, when you drive it off the dealer’s lot, we know you would do everything in your power to take care of it. However, there are unfortunate events that you can’t plan for, such as someone stealing your car or it gets totalled in an accident. To avoid paying the difference for a new vehicle, you might want to consider new-car replacement insurance.
Right now, you might be wondering how does replacement car insurance work. This coverage is very simple to understand. As you know, once you take your car off the lot, it will start losing 10% of its value during the first month. Then, during the first year, it would depreciate up to 20% from its original worth. This means that in case your new car is declared as a total loss, the insurance company will only give you the actual cash value (ACV).
The ACV could be thousands of dollars less than what you pay for the car. That’s because typical insurance covers the value of the car at the moment of the accident. If you decide to pay for new-car replacement insurance, you can get back the complete amount you paid and buy a new car. Since this insurance offers more coverage, it is also more expensive. In case you are not sure whether buying this coverage is worth it, here we will explain everything you need to know about it.
How does replacement car insurance work?
New-car replacement insurance, as we explained before, is a type of coverage that will protect your vehicle in case of a total loss. A total loss is declared when the cost to repair your car exceeds, or is close to its value. In case your car is stolen, that situation is also considered a total loss.
Once the insurance company certifies this condition. Then, you can get back a certain amount depending on the coverage you have. For instance, let’s say you bought a car for $50,000, and after some time driving it, the value depreciates to $44,000. In case your car is declared as a total loss, the insurance company will only give back the depreciated value. However, with a new car replacement insurance, they will reimburse the total amount you paid.
Even though you will have to pay more for this type of insurance, it is worth it if you don’t want to get stuck paying hundreds or even thousands of dollars for the difference. Some insurance companies offer new car replacement insurance for up to 5 years. But, in general, most companies cover up to one year of ownership.
Now that we know what is a new car replacement insurance, we will explain how it works.
Requirements for a New Car Replacement Insurance
New car replacement insurance is a great way to protect yourself from paying more than what you already did the first time. This coverage only applies to new car owners. If that is not your case, check this article to discover top car insurance policies.
The replacement car policy will reimburse you the total value of your car before you took it out of the dealer’s lot. That way, you could buy a new car without having to cover the gap insurance. But, if you want to acquire a new car replacement insurance, there are certain conditions you need to meet.
Have collision and comprehensive insurance
This insurance will protect you, in case you hit another car or an object. Also, it will pay for all the non-crash damages, including theft, weather or fire. These two insurances often come in a package deal, and when you are purchasing it, you can add the replacement car insurance policy.
Age and Mileage
When you purchase the car, you need to be the first titleholder of the vehicle, plus it should have less than 1,000 miles on the odometer. After you buy it, the conditions of age and mileage will vary depending on the insurance company. As we mentioned above, most policies will cover the first year. In other words, up to 15,000 miles. But, there some companies even offer protection up to 24,000 miles. That’s why you must talk with several insurance companies before making a decision.
Pay a deductible
The majority of people at some point have heard about a deductible. However, most of them have no idea what that means. Paying a deductible refers to the amount you will have to pay out of your pocket. This deductible usually applies to damages, but in the case of a new car replacement insurance, you will also have to cover that value.
Better car replacement insurance
More than a condition, better car replacement insurance is another policy option you have. As its name explains, you will get the money for a better model. For instance, if you have owned the car for less than two years before the accident, insurance will pay for a model that is two years newer.
Time of purchase
Most insurance companies have a limited time frame in which you can purchase the new car replacement policy. Some can give you up to six months after buying the vehicle, while others you can acquire at any time.
New Car Replacement Insurance: How much does it cost?
A new car replacement policy is one of the most expensive add-ons, compared to other extra coverage that the insurance companies offer. The exact amount you will have to pay depends on the vehicle you purchase. But, on average, this could result in an extra $120 every year. If you want to know the accurate amount, the only way is to ask for quotes.
Where can I get this insurance policy?
Major companies including Allstate, MetLife, Safeco, Acuity, Liberty Mutual and Travelers offer new replacement car insurance. However, depending on the company you choose, the conditions and prices might vary. Make sure you ask for several quotes before paying for this policy.
In this article, we have explained everything there is to know about how does replacement car insurance work. Now it’s up to you to evaluate all the insurance options and choose the best one for you. But, if you are a first-time car owner, we strongly recommend purchasing the new car replacement policy.