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What Is New Car Replacement Insurance?

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New car replacement insurance will give you peace of mind when you drive a new vehicle off the lot
Photo: Tumisu via Pixabay

If you’ll be buying a new vehicle sometime in the near future, you might want to look into a special type of coverage designed to protect your investment. Here’s a brief look at what new car replacement insurance is and the benefits of having it.

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What it is and what it covers

As its name implies, new car replacement insurance protects you in the event that you total your new car soon after bringing it home. This means that insurance will pay the cost for a brand new car of the same make and model as the one you’re replacing — minus the deductible, of course.

Considering that new cars lose more than 20 percent of their value in the first 12 months of ownership, this type of coverage protects you from getting the short end of the stick when it comes to depreciation. Without replacement insurance, the carrier will typically value your totaled car at a lower price and offer to replace it with a cheaper vehicle and different model instead of the same one you just lost.

More details about this type of coverage

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You might be able to add on new car replacement coverage to your existing auto insurance policy

Before you commit to a new car replacement policy, there are a few things you should keep in mind. Per Forbes, your new vehicle must meet the insurance company’s age and mileage requirements. For instance, some companies specific that your new car has to have less than 1,000 miles on the odometer.

In addition, if you already have collision and comprehensive coverage, you can usually just add on this provision to your existing policy. When shopping for the best insurance rates, look for a low deductible. The deductible is the amount you’ll have to pay if your new car gets totaled and insurance covers the difference of the replacement vehicle.

Get the scoop on picking the right car insurance coverage limit here. And learn how to deal with a hit and run accident if you find yourself in that unfortunate situation.

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