Should I Buy New Car Replacement Insurance?

New car replacement insurance is an auto coverage option that may be worth purchasing if you have an expensive car and don’t have enough money saved up to buy a new one if necessary after an accident. It can pay to replace your vehicle with another car of the same make and model if it gets totaled.

Keep reading to learn if your car can qualify for new car replacement insurance and whether it would be a worthwhile investment for you.

On This Page

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  What Is New Car Replacement Insurance?

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  How Does New Car Replacement Insurance Work?

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  What Is Covered by New Car Replacement Insurance?

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  Is New Car Replacement Insurance Worth It?

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  Which Companies Offer New Car Replacement Insurance?

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  FAQs

What Is New Car Replacement Insurance?

New car replacement insurance is an optional car insurance add-on that can help you buy a new car if your insurance company declares your vehicle a total loss. With this coverage option, your insurance company will pay out the value of a new car that is the same make and model as your previous car minus your deductible.

For example, if you paid $50,000 for your car and have a $500 deductible, then new car replacement insurance might provide you with $49,500 if your car was destroyed in an accident shortly after you bought it.

How Is New Car Replacement Insurance Different From Full Coverage?

Unlike new car replacement insurance, most full coverage policies reimburse total losses at the car’s actual cash value (ACV). This means your insurance provider would take depreciation factors like your car’s age or wear and tear into account when determining what to pay you.

New cars can lose as much as 11% of their value as soon as you leave the dealership and may depreciate by 60% within five years.^[1][2] As a result, if you paid $50,000 for your car and lost it in an accident five years later, a full coverage policy would likely only provide you with $20,000 unless you upgraded your policy to include replacement cost coverage.

How Does New Car Replacement Insurance Work?

Your car will likely have to meet certain qualifications in order to be eligible for new car replacement insurance. For example, many insurers require you to purchase comprehensive and collision coverage before adding new car replacement insurance to your policy.

Each company will also have its own requirements for the age and mileage of an eligible vehicle. For example, Liberty Mutual only offers new car replacement insurance for vehicles that are less than one year old and have driven fewer than 15,000 miles.^[3] Meanwhile, Allstate covers vehicles for two years and Travelers’ Premier New Car Replacement coverage lasts for five years after you buy your vehicle.^[1][4]

What Is Covered by New Car Replacement Insurance?

New car replacement insurance should cover any unexpected event that causes you to lose your vehicle. In this way, it is an extension of your comprehensive insurance, which covers perils like fire and theft, and your collision insurance, which covers car accidents.

Since you are required to have both of these coverage types if you want to buy new car replacement insurance, you can expect one of them to kick in first if your car is lost. For example, if someone steals your car, your comprehensive coverage would pay out at your car’s actual cash value, after which your new car replacement insurance would cover the rest of the cost of buying a new car. You may have to pay a separate deductible for each payout, depending on the details of your policy.

What Isn’t Covered?

Your new car replacement insurance payout may not account for expensive modifications like subwoofers or a custom paint job unless you purchase custom parts and equipment coverage. It also won’t pay to replace any items that were lost from your vehicle since these would be covered by your homeowners or renters insurance instead.

If you use your car for business purposes, you may not be eligible for new car replacement unless you purchase a commercial auto insurance policy. In addition, your insurance company won’t help you buy a new vehicle if they discover that you intentionally destroyed your car to collect an insurance payout.

Is New Car Replacement Insurance Worth It?

New car replacement insurance will most likely be worth the higher premium if you have an expensive vehicle and couldn’t afford to pay for a replacement out of pocket after an accident. You may not be able to bridge the gap between the actual cash value payout from your comprehensive or collision claim and the nearly $50,000 price tag for an average new car.^[5]

Remember that the more valuable a car is, the quicker it depreciates, meaning new car replacement insurance provides the best value for more expensive cars.

Conversely, if replacing your totaled car with a similar one isn’t important to you, then you may not need new car replacement insurance. As long as you have comprehensive and collision coverage, the ACV payout you receive after a total loss may be enough to purchase a used car.

Keep in mind that, depending on your insurer, your vehicle could be eligible for new car replacement insurance for as little as a year. Depending on the length of your insurance provider’s coverage period, you may feel comfortable foregoing new car replacement insurance. This might be especially true if you live in a rural town or some other area where there is little risk of your car being stolen or destroyed.

Which Companies Offer New Car Replacement Insurance?

While new car replacement insurance is not available through every insurance carrier, some of the companies that do offer it include the following:

Some insurers offer better car replacement coverage that provides similar protection even if you have an older vehicle. For example, if your car gets totaled after you have owned it for more than two years, Erie Insurance’s Auto Security add-on provides enough money for you to buy a similar car that is two years newer than your previous vehicle.^[8]

In addition, some companies that don’t offer new car replacement insurance may still offer additional support in case your vehicle is totaled. For example, USAA, an insurance provider for military families, provides car replacement assistance at 120% of the vehicle’s actual cash value after a total loss.^[9]