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New car replacement insurance

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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.

Our content is backed by Coverage.com, LLC, a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed . Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

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At Bankrate, we strive to help you make smarter financial decisions. To help readers understand how insurance affects their finances, we have licensed insurance professionals on staff who have spent a combined 47 years in the auto, home and life insurance industries. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation of how we make money . Our content is backed by Coverage.com, LLC, a licensed entity (NPN: 19966249). For more information, please see our Insurance Disclosure .

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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

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Buying a new car is a significant investment of your financial resources. The last thing you want is to pay out again if your car is totaled in the first year or so of ownership. For drivers in this situation, a type of insurance called new car replacement coverage can help you get behind the wheel of a new car with limited financial repercussions. Is new car replacement insurance worth it? Bankrate’s insurance editorial team took a close look at what new car insurance is and how it might benefit you as the owner of a new car.

What is new car replacement insurance?

New car replacement insurance is optional coverage you can purchase on top of the liability insurance your state mandates.

Usually, new car replacement insurance is only allowed if your car is less than a couple of years old or has under a certain amount of mileage (often 15,000, or roughly the average mileage that most people drive in a year). Some insurers also require you to carry collision and comprehensive coverage to have new car replacement insurance.

This add-on generally costs about 5 percent of the amount of your total coverage, so if your policy costs $1,000 a year, the new car coverage portion may add about $50.

Normally, your insurance would pay you the depreciated amount of your car if it’s totaled or stolen, but with new car replacement coverage, your payout will account for the value of a brand new version of your same make and model. It should be enough for you to purchase the exact same car as the one you lost.

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Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

Rates increased up to 12% this year.

Costs will continue to rise through 2022. Shop for a better rate before you renew your current policy.

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Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

How does new car replacement insurance work?

Let’s say you bought a new 2020 Honda Accord for $29,000. You purchase new car replacement insurance. Six months later, you are T-boned at an intersection, and the insurance adjuster declares your car totaled.

If you did not have new car replacement insurance, you would receive the depreciated market value for the car, which may be roughly $24,000 (minus your deductible). With your new car replacement coverage, however, you’ll receive a check closer to the $29k (again, minus your deductible) you paid for the car — enough to purchase another 2020 Honda Accord.

Things to know about new car replacement insurance

If you are considering new car replacement or even if you are already covered under this add-on, the following conditions still apply and could potentially make you ineligible if you do not meet them.

Where to buy new car replacement insurance

If this type of coverage looks appealing to you, you are likely wondering what insurance companies offer new car replacement insurance. Not all of them do, but the following insurers may be worth considering if you are interested in this endorsement.

Several major companies, including Geico and State Farm, do not offer new car replacement.

New car replacement insurance vs. gap insurance

Although gap insurance is similar, these coverage types are not the same thing and generally you’ll pay separately for each of them. Learn the difference between new car replacement insurance vs. gap insurance.

Gap insurance is short for “guaranteed asset protection.” It doesn’t pay for you to purchase a new car, but it does provide you with the money needed to pay off your car loan. In other words, it covers the gap between your new car’s actual cash value (ACV) and the amount you owe on the vehicle.

So let’s take another look at our 2020 Honda Accord. You took out a loan to purchase the car, and now you still owe $28K on it. If you don’t have new car replacement or gap insurance, you’ll receive the car’s actual cash value of roughly $26K, minus your deductible. That leaves you still owing $2K more than you received.

Gap insurance would give you that additional $2K so you could pay off the loan. New car replacement will give you the amount needed for a new car like the one you lost regardless of the amount on your loan.

Both mean that you’ll probably get a larger payout if your new car is totaled, but new car replacement means your payout will allow you to buy a new car. Gap insurance would give you what you needed to pay off the loan on the old one.

Is new car replacement insurance worth it?

Only you can decide if new car replacement insurance is worth it. Here are a few factors to consider:

New car replacement insurance can be a worthwhile option to consider when you purchase a new car, especially if you drive a great deal — which leaves you more likely to be involved in an accident. If you work from home or are retired and drive very little each year, it may be less necessary to consider this type of coverage. Another factor is whether your car depreciates slowly or quickly. New car replacement insurance may be more beneficial for those who have a car that depreciates quickly, rather than for those who have cars such as Volvos that traditionally hold onto their value for a longer period of time.

Frequently asked questions

How much does new car replacement insurance cost?

Can I get new car replacement insurance if I purchase a used car?

Do I have to buy new car replacement insurance when I buy my car, or can I get it later?

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