New Car Replacement Insurance

New Car Replacement Insurance

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New car replacement coverage is a form of insurance available to drivers of brand-new cars. If your car is totaled in an accident within a few years after you buy, new car replacement insurance will pay for the full replacement cost of a new car that's the same make and model as the one you had.

New car replacement coverage is usually limited to drivers with collision and comprehensive coverage on their insurance policies. It's also only available for brand-new cars, and you have to add the coverage to your policy shortly after you buy.

New car replacement coverage typically costs about $300 per year. But the price you'll pay depends on both the car you're buying and your insurer. American Family had the best prices for new car replacement coverage, with an average annual rate of just $96.

What is new car replacement insurance?

Buying a new car can be a lot of fun. It's shiny and clean, and it's probably faster and nicer than the older car it replaced. Buying a new car also provides peace of mind over a used one because you don't have to worry about what its previous owner did — or didn't do — while the car was in their care.

But if your new car is totaled in a crash or stolen, your car insurance won't cover the full cost of replacing it with another new vehicle. Instead, you'll only receive enough to buy a used car as old as your recently purchased vehicle.

That's because cars depreciate over time, meaning they lose value as they get older. So if your car is totaled soon after you purchase it, the amount your insurer pays out likely won't cover an exact replacement. This is because comprehensive and collision coverages only cover the actual cost value, or ACV, which factors in depreciation.

New car replacement insurance makes up the price difference between your depreciated model and a brand-new car.

Some insurance companies take new car replacement coverage a step further and may pay for a newer model year than the one you previously owned, making it an extra-appealing option in those cases.

How much does new car replacement coverage cost?

New car replacement coverage is about $300 per year, but the cost varies across insurers and for different car models.

The cheapest insurer for new car replacement coverage is American Family, where coverage costs around $98 per year — 68% cheaper than the typical rate across all the insurers we surveyed.

Insurer
Price of new car replacement coverage
American Family$98
Nationwide$168
Erie$237
AAA$254
USAA$294
Travelers$299
Average$304
Farmers$775

Surprisingly, a cheap car insurance policy doesn't guarantee that new car replacement coverage will be affordable. A Farmers Insurance policy without new car replacement was the least expensive. But adding new car replacement coverage increased Farmers' rates by more than 70% — the most we saw from any other company was just 17%.


The price you'll pay for new car replacement coverage depends on the type of car you buy, too. In general, a more expensive vehicle will cost more to protect with new car replacement.

Model
MSRP
Cost of New Car Replacement Coverage Honda Civic
$22,350
$255
Hyundai Santa Fe$27,700$264
Ford F-150$30,495$306
Mercedes GLC300$43,850$296
Tesla Model 3$46,990$397

Besides being more expensive to buy, higher-end cars also depreciate more quickly. A Tesla Model 3 totaled after one year will generally lose more of its value than a Honda Civic, meaning your insurer will have to pay you more.

Is new car replacement coverage worth it?

New car replacement coverage is more of a nice-to-have than a need-to-have, since it only pays the difference between the cost of a new car and the value of the car you previously had. But it may still be worth the peace of mind you'll get from protecting your investment.

It depends on how much risk you're willing to tolerate or how much you're willing to pay to protect yourself against the risk. When deciding whether you want to add replacement coverage to your insurance policy, consider:

  • Whether your car is likely to be totaled in an accident
  • How quickly your car is depreciating — newer and more expensive cars depreciate faster, making replacement coverage a greater value.
  • Whether you can afford to replace your car without this type of coverage
  • The amount your insurance company charges for coverage

Ultimately, the best way to determine whether new car replacement is worth it for you is to consider whether the additional cost is justified by the peace of mind it offers. With new car replacement coverage, you'll be able to drive and enjoy your new car without worrying about what would happen if it was totaled in an accident.

What companies offer new car replacement?

New car replacement insurance is available from many insurers, but not every company offers it. Among the 10 most prevalent insurers in the United States, new-car replacement coverage is available at:

  • Allstate
  • American Family Insurance
  • Farmers Insurance
  • Liberty Mutual
  • Nationwide
  • Travelers
  • USAA

New car replacement coverage eligibility

Since the difference between your car's actual cash value (ACV) and replacement cost only grows over time, most insurers limit how long they'll provide replacement coverage for your new car. The exact restrictions vary by insurer, but the limits usually include a maximum age and mileage. You're also usually required to purchase comprehensive and collision coverage in order to qualify for new car replacement insurance.

Insurer
Eligibility requirements
AllstateCar must be 2 model years old or newer
FarmersCar must be newer than 2 years old and have fewer than 24,000 miles
Liberty MutualCar must be less than 1 year old and have fewer than 15,000 miles. Older cars are eligible for "better car replacement," which provides a car 1 year newer with 15,000 fewer miles than yours had pre-accident.
Nationwide (through Allied)Car must be newer than 3 years old
TravelersCar must be less than 5 years old, and you must be the original owner USAAPays flat 20% of car's ACV, no vehicle age restrictions

New car replacement vs. gap coverage

Gap coverage is a type of insurance that's available to drivers who have a lease or loan on their vehicle. New car replacement and gap coverage both help make up the difference between the ACV of your car and what it will cost for you to replace the vehicle, if it is totaled in an accident.

However, gap coverage only pays off your lease or loan amount, so you won't owe money on a car you no longer own. New-car replacement goes one step further and pays for the entire replacement cost of a new vehicle equivalent to the one you had.

For example, let's say you bought a new car for $25,000. After 12 months, it's worth $20,000, and you still owe $22,000 on the loan. If you were in an accident and the car is totaled, your collision coverage would pay what the car is worth, or $20,000 minus your deductible.

New car replacement coverage would pay for an identical brand-new car — in this case, an additional $5,000. Gap coverage would only cover the difference between what collision pays and what you owe — in this case, $2,000. You wouldn't have a car, but you would not owe any money on your car loan, either.

Gap insurance is a more commonly available alternative to new car replacement. It's offered by Geico, Progressive and State Farm, none of which provide new car replacement insurance.

If you are buying a new car and your insurance company doesn't offer new car replacement insurance, you might consider adding gap coverage instead if you want to stay with your current insurer.

Methodology

To understand the cost of new car replacement car insurance, we collected sample quotes from seven major insurers that offer the coverage: AAA, American Family, Erie, Farmers, Nationwide, Travelers and USAA.

Our analysis used insurance rate data from Quadrant Information Services. These rates were publicly sourced from insurer filings and should only be referenced for comparative purposes.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.