New car replacement is a coverage add-on that pays to replace your totaled car for a new vehicle that’s the same make and model. When your car is totaled, a standard full-coverage policy will be pay out for the car’s value minus aging and wear and tear. New car replacement insurance covers the entire cost of your car, so you can buy a brand new one.
You can only add the coverage to your car insurance policy if your vehicle is a newer model and if you’re the first owner, though each company has different rules. Typically the cost to add new car replacement varies by company, but it can be as low as $20 per six-month period.
What is new car replacement insurance?
New car replacement insurance pays for the entire cost of a brand new vehicle of the same make and model if yours is totaled in an accident. Without new car replacement, your insurance company will pay for your car’s damage on an actual cash value basis.
That means that when your vehicle is totaled in an accident and you don’t have new car replacement coverage, you’ll receive a payout for the cost to replace your totaled car, minus the value it lost through normal aging and wear and tear (also called a car’s depreciation). The payout may not be enough to buy a brand new car of the same type, so you’d have to make up the difference yourself.
Type of coverage
Actual cash value (minus deductible)
Full coverage with new car replacement
Full amount (minus deductible)
The cost of new car replacement depends on the company and your vehicle — it’s more expensive to get new car replacement for a luxury or high-tech car than for one that’s cheaper to replace. But you may be able to add new car replacement to your policy for as low as $20 per sixth-month period, or more depending on your insurer.
New car replacement vs. gap insurance
New car replacement coverage is similar to gap insurance, but they aren’t the same thing. Gap insurance is for drivers who are leasing or financing their car with a loan. Like new car replacement coverage, gap insurance acts as a guard against your car’s depreciation.
As your car loses its value, it can become worth less than the lease or loan . If your car were totaled, you’d have to pay the difference between the value of your car and the loan or lease. Instead, gap insurance pays the rest of the lease or loan, leaving you off the hook for the remaining payments. While gap insurance pays out your lessor or lienholder, new car replacement pays you.
You can get both new car replacement and gap coverage for a vehicle that you’re financing. If you’re leasing your car, you may need to get new car replacement along with gap insurance. Some companies don’t allow you to get gap insurance without buying new car replacement too.
How does new car replacement insurance work?
To use your new car replacement insurance, your vehicle must be a total loss. An insurance company declares a car a total loss when the cost to repair the damage is already close to or more than the car’s value, when the car is stolen, or when its damage is greater than a certain percentage of the vehicle’s pre-accident value.
When you make a claim for a covered loss, your new car replacement coverage will pay for the cost of a new car without considering your old car’s depreciation.
Let’s say you total your $20,000 car. In the year you’ve had it, the car’s value has dropped by 25%, or $5,000. Without new car replacement, you’d have to pay that $5,000 yourself if you wanted to replace your car with the same model, but with new car replacement coverage your insurance company would pay for the full value of a new car.
Who can get car replacement insurance?
New car replacement insurance isn’t available to everyone. Before you can get auto replacement protection, companies usually require that:
You are the car’s first owner
The car is only five or fewer model years old
There are fewer than 25,000 miles on the car’s odometer
Assuming your car meets these requirements, you must also have full-coverage auto coverage — meaning you have comprehensive and collision coverage — before you’ll be able add new car replacement insurance to a policy.
Do you need new car replacement insurance?
It could be a good idea to consider adding new car replacement coverage if your vehicle is eligible and you can find cheap quotes. However, because adding the coverage might be expensive depending on the car and company, it all comes down to your tolerance for risk.
Imagine that it costs $20 per month more to add new car replacement coverage to your car insurance. Most companies only offer new car replacement for cars two model years old or younger. That means that over two years you’d pay $480 per year.
On the one hand, by paying more to add new car replacement coverage, you could avoid paying hundreds or thousands of dollars to make up for a totaled vehicle’s depreciation in the event of an accident.
But if you’re not worried about replacing your car with a brand new version of the same car — or you’re comfortable paying for the cost of the vehicle’s depreciation yourself if an accident occurred — then you could avoid adding the coverage and raising your rates.
Which companies have new car replacement insurance?
Many of the top car insurance companies offer new car replacement coverage, though each company has its own rules for which types of cars can get covered. You can’t get new car replacement from the largest companies if your car is older than 5 years or it has more than 24,000 miles on it.
Erie and Liberty Mutual both offer an enhanced form of new car replacement that allows drivers to get a newer car than their old one after an accident. This coverage is called Better Car Replacement with Liberty Mutual, and Auto Security with Erie.
Pays for the cost to replace a totaled car as long as the vehicle is two years old or newer.
Replaces a car that's two years old or newer
Available to cars that are two model years old or newer and with 24,000 miles or fewer.
Applies to vehicles in their first year of ownership or within their first 15,000 miles.
Pays to replace a totaled car that's two years old or newer.
Replaces a totaled car that's five model years old or newer as long as you're the original owner.
Adds an additional 20% to the actual cash value of the vehicle.