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Is new car replacement coverage worth it?

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The lowdown...
  • New car replacement coverage is an add-on option for car insurance
  • The coverage can help you purchase a new vehicle, same make and model, after an accident
  • Insurance carriers will vary in the premium charged for new car replacement coverage
There are a variety of coverages available to consumers in the insurance space that are seen as a mystery. How many times have you seen commercials on television for new car replacement coverage?

Do you have a firm grasp of what this coverage means? As a consumer, there is nothing stronger than having information at hand that you can rely on. When you can translate insurance lingo into real value for you, that is when you can measure if it is worth you purchasing or not.

Every car insurance policy is going to come with a standard list of coverages as well as limits. It is when you start to go outside of the norm policy package that you are going to be presented with options.

New car replacement coverage is going to be one such type of opportunity that you will likely be considering. Let us take a deeper dive to help you decipher if this is something worth spending money on as part of your premium.

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The Case for New Car Replacement Coverage

adobestock_37653669-1600x1600The whole premise of the new car replacement coverage is to assist you in the event you were in an accident and need a new set of wheels. Everyone loves that new car smell. You buy a car at a dealership, drive it off of the lot with big smiles. What happens if, a few months later, you get in an accident?

Cars are going to depreciate at a very rapid rate. There is a good chance that, due to depreciation, the value that your vehicle has at that time of the accident is not going to provide you with the necessary funds to be able to replace it for a brand new version.

New car replacement coverage comes in to fill this gap substantially. It is all about being able to get you a new car, based on the make and model that you had, regardless of the value of your current car at the time.

Same Make and Model, Replaced

New car replacement coverage is going to allow you to go and buy the same make and model of the car that you have, up to a certain percentage of the original vehicle Manufacturer’s Suggested Retail Price (MSRP).

An example of this limit above the MSRP would be something like 110 percent. If you bought a car for $10,000, as the most basic example, and you get in an accident, you would be entitled up to $11,000 if that is what it would take to replace that vehicle with a brand new one.

The trick here is that it is going to be the same make and model. You cannot get in an accident with a Honda Accord and then expect your car insurance company to buy you a brand new Mercedes; it simply does not work that way!

What you are going to be allowed to do though is to get enough funding so that you can have the cash to get a brand new version of the same make and model of the vehicle you have.

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Looking at a Close Example

Let us look at an example of new car replacement coverage so that you can get the full picture here. You buy a brand new car for $30,000 on January 1. You drive it, very happily, for around six months. After that time has gone by, around the month of July, you, unfortunately, get into a car accident.

The car is completely totaled. The depreciated value of the car after that six months has passed is now roughly $25,000.If you did not have new car replacement coverage, all you would be entitled to be the depreciated value of your current vehicle, $25,000.

When you elect to buy the new car replacement coverage, though, you would instead be entitled to $30,000, which is what it would cost you to buy your same make and model of car brand new again.

Another form of this type of coverage is known as gap insurance, with this being far more common to those who have boughten new vehicles. Gap insurance works similarly, allowing you to recoup the difference between what you may owe on a car on loan and what you are going to actually be able to cover based on its depreciated value, filling the “gap.”

Weighing the Value

AdobeStock_107417448-1600x1600So is it worth it to buy new car replacement coverage? It certainly is not going to be a coverage that is free. When you elect this coverage, the premium that you pay for your policy is going to increase. The coverage, though valuable, does have a cost associated with it.

Coverages that you elect to purchase though are all about protecting your investment, and a new car is just that. If you have just driven a new car off of the lot, having this coverage is going to ensure you can keep your new car, whether it has to be replaced or not. The premium you pay in exchange is minimal when compared to the value you receive.

Consumers are going to see all sorts of offers for new car replacement coverage from carriers. Do your homework and read the fine print of these coverage offerings. See how far above the MSRP they will go to get you the new vehicle again, as that may vary by insurer.

Also know what they are charging for this coverage, as you may be able to get it less expensively depending on who you bind your policy with. New car replacement coverage is something that is certainly valuable. Understand its benefits and take advantage of them by adding it to your next car insurance policy.

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