New Car Replacement Insurance Explained

Before you drive a new car off the dealer’s lot, you may want to consider new car replacement insurance.

Say your car — your new baby — is stolen or totaled in an accident. Comprehensive and collision insurance, both typically required for the life of an auto loan, will pay out up to the car’s value, minus any deductible.

A deductible is the amount you're responsible for paying if you file a claim. When you buy your insurance policy, you select your deductible. If you choose a high deductible you'll have a lower car insurance premium, but you'll also pay more out-of-pocket if you make a claim.

But because new vehicles lose value quickly, that claim check will be less than what you paid for the car, leaving you in a financial bind with no ride.

New car replacement insurance, an option with some insurers, offers to ease the financial pain. It pays the value of a brand-new car of the same make and model, minus the deductible, if your car is declared a total loss.

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New car replacement insurance generally costs extra and is available only if you buy collision and comprehensive insurance.

Who offers new car replacement insurance?

New car replacement insurance isn’t universally available. Some of the nation’s largest auto insurance companies, including Geico, Progressive and State Farm, don’t offer it. And among companies that do offer it, new car replacement coverage may not be available in all states.

The companies in the table below describe their policies online. But others may offer new car replacement coverage as well, so be sure to check with your insurer.

How much new car replacement insurance costs

Pricing varies by driver, vehicle and state, so some companies don’t provide cost details.

To give a rough idea, Farmers says the cost for its new car replacement insurance varies, but typically adds about 5% to 13% of the price of your comprehensive and collision coverage. So if your Farmers comprehensive and collision insurance costs $100 a month, you'd pay an extra $5 to $13 a month to add new car replacement coverage.

Some insurers like Shelter, include new car replacement coverage at no extra cost; other companies bundle it with a package of upgrades.

The only way to get an accurate price is to compare car insurance rates.

New car replacement vs. better car replacement

If you don’t drive a new car, replacement coverage may not be available to you. But you may be able to get “newer car replacement” or “better car replacement” policies at some companies, including:

• Acuity.

• Erie.

• The Hanover.

• Liberty Mutual.

The optional better car replacement coverage at Liberty Mutual, for example, will pay you the value of a car that’s a model year newer and has 15,000 fewer miles on it than your totaled car.

New car replacement vs. gap insurance

While new car replacement insurance can help you buy a new car, gap insurance is designed to make sure you can pay off the old one.

If your car is totaled or stolen and your collision or comprehensive insurance doesn’t cover what you owe on the car’s loan or lease, gap insurance pays the difference minus any deductible. Prices vary, but generally gap coverage costs a few dollars a month, according to the Insurance Information Institute.

Before you buy gap insurance or new car replacement coverage:

• Understand the terms and conditions. Depending on the insurer, gap coverage might be available for more years than new car replacement coverage — beneficial if you have a loan.

• Get quotes to compare the costs of gap insurance and new car replacement coverage, especially if you owe more than the car is worth.

• If you skip gap or new car replacement coverage, make sure you have enough in savings to both repay a lender if the car is totaled and make a down payment toward another car.

If you do opt for new car replacement insurance, be sure to cancel it once your car is over the age limit or mileage specified by your insurer. Otherwise, you might end up paying for expired coverage.

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