Which insurance companies offer replacement cost car insurance, and is this add-on worth the cost?
While details may vary, new car replacement is essentially what it sounds like. If you carry this add-on coverage, your insurance company will replace your totaled vehicle with a brand new car after a collision. In order to qualify for new car replacement coverage, you'll need physical coverage — collision and comprehensive — and your vehicle will need to be relatively new (mileage maximums may apply).
Let’s explore the ins and outs of new car replacement to answer the question: is new car replacement insurance worth it?
New car replacement insurance covers the cost of replacing your totaled vehicle with the same vehicle in the event of a covered loss. In order to qualify for new car replacement insurance, you may need to carry comprehensive and collision coverages, relatively uncommon coverage levels for a new car. Details of new car replacement coverage vary by the insurance company.
See below vehicle qualifications and which insurance companies offer new car replacement coverage as part of an auto policy.
Not all major car insurance companies provide car replacement insurance. Below are popular insurance providers offering new car replacement.
Will replace the vehicle if it is two or fewer model years old.
Applies only to brand new vehicles. Replacement cost cannot exceed 110% of the totaled vehicle's original MSRP.
Applies only to vehicles insured with Farmers upon purchase and less than two years old, with 24,000 or fewer miles.
Replaces totaled vehicles bought within 15 months or 15,000 miles of the accident.
Replaces totaled vehicles with a new version if it is less than a year old or has fewer than 15,000 miles.
Replaces totaled vehicles within five years unless stolen or damaged by fire, larceny, or flood.
Pays cash for a new vehicle if the totaled car has fewer than 15,000 miles and is less than one model year old.
Covers the cost of a new vehicle if the totaled car is fewer than three years old.
In addition to new car replacement, some insurance companies offer other coverage options:
Consider the following when deciding whether or not new car replacement coverage is worth it:
For example, a driver is buying a 2019 Chevy Suburban for $50,800 and debating whether or not to add new car replacement. The rules of automotive depreciation dictate how much this SUV will be worth in the years following its purchase. If the car is totaled after one year of ownership, new car replacement coverage would only refund 75% of the car's original cost.
*Data from Edmunds.com
This payout would not be enough to cover the purchase price of a new Suburban.
If you know ahead of time you will want another new model, you might want to speak to your provider or insurance agent about adding this coverage. Bear in mind, the above example is based on estimated rates of depreciated value. It's impossible to predict the cash payout an insurance company will furnish in the event of a total loss payout.
Gap insurance and new vehicle replacement are common coverage options for new vehicles. Each helps to cover the difference between the actual cash value — including depreciation — of your vehicle and its original value.
Gap insurance offers no help finding a new vehicle: it only covers the difference between a car loan or lease contract and a claims payout. It protects drivers from owing money on a car loan after totaling their vehicle. Gap insurance is more readily available than new car replacement insurance. Although State Farm, Progressive, Esurance and USAA do not offer car replacement insurance, they do sell gap insurance.
Car insurance companies don’t advertise up front how much they charge for a service like new car replacement insurance. Most companies estimate an average rate hike of 5% for new car replacement insurance. This total may vary by insurance company and vehicle.
The primary factors contributing to how much a driver pays for insurance aren't extras like new car replacement coverage. Instead, factors like past driving record, location and the pricing structures of each insurance company carry more weight. The best way to find affordable auto insurance is to compare policies from as many companies as possible. If you’re interested in seeing quotes from local and national companies for the coverage options you need, enter your ZIP code below.