If your car is totaled, insurance will typically pay you the car’s actual cash value
The ACV may not be enough to pay to replace the car
New car replacement coverage pays to replace your totaled car with an equivalent one
No driver wants to total their car, but it happens. Typically, if your car is totaled, meaning it’s so badly damaged that your insurance provider considers it a total loss — your insurer will pay you what’s called actual cash value for your car.
Your car’s actual cash value, or ACV, may be hundreds or even thousands of dollars less than what you paid for your vehicle in the first place, meaning it likely won’t be enough for you to replace your car with one of a similar make and model, especially if your car is relatively new.
That’s where new car replacement coverage comes in. This is a type of add-on car insurance coverage that will pay you enough to replace your car with a similar one in case it’s totaled. New car replacement coverage is usually only available for cars that are less than a certain number of years old, although the specifics vary by provider.
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Your insurance company will typically declare your car a total loss after an accident if the cost to repair the damage is close to, or more than, the car’s worth (a car will also be declared a total loss if it’s been stolen). Your state may also set a total-loss threshold, which means the state requires a car to be declared a total loss if the damage exceeds a certain percentage of the vehicle’s pre-accident value.
If you have collision and comprehensive, your totaled car will be covered. But, as we mentioned above, your insurer will pay out your car’s ACV, which may not be enough for you to replace your car with an equivalent one.
Cars depreciate in value quickly, so if you total a car you bought days, weeks, or months ago, the ACV your insurer will pay out could be thousands of dollars less than what you paid for it. But if you’ve added new car replacement coverage to your policy, your insurer will pay out enough for you to replace your totaled car with a comparable new one.
New car replacement coverage can be a pricier add-on than other types of optional coverage — the exact cost varies depending on your vehicle but it might run you around $120 extra per year.
Additionally, new car replacement coverage is usually only available if you are the original owner of a car that is only one or two years old. So if keeping your monthly car insurance premiums low is your goal, you may want to skip this coverage.
Still, if you’re willing to pay a little extra each month for the security of knowing you’d be able to replace your current car if it were totaled, new car replacement could be a good option.
Most major car insurance companies offer some version of new car replacement coverage, including Allstate, MetLife, Safeco, Acuity, Liberty Mutual and Travelers. But the details of this type of coverage are specific to each provider.
Safeco, for example, only offers new car replacement coverage if your car is less than one year old. Acuity offers vehicle replacement coverage that will replace a newer car with one of the same or similar model, and will pay out 25% above the current value of an older car. Liberty Mutual offers multiple options — new car replacement will pay to replace a totaled car if it’s less than a year old and has less than 15,000 miles, and its better car replacement coverage will pay to replace your car with a vehicle that’s one model year newer and has 15,000 fewer miles.
If you’re interested in adding new car replacement coverage to your policy or in shopping around for a new policy altogether, contact your provider or speak to a Policygenius expert.
Anna Swartz is a Managing Editor at Policygenius, where she has been since 2018. An expert in home, auto and renters insurance, she loves making tough concepts easy to understand and helping readers feel confident about their insurance options. Before joining Policygenius, she was a senior staff writer at Mic. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.
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