You saved, and you saved, searched high and low, and finally found the perfect new car. Then whammo, three weeks after bringing your new ride home, you hit a light pole in the parking lot thinking you were in reverse but no; you were in drive and totaled your precious new car.
Even if you carry collision insurance, an auto accident that totals your new car will be expensive. Most likely the insurance check will be less than what you paid for the vehicle and, if you are making payments on the vehicle will be less than what you owe on the loan, unfortunately leaving you with zero dollars to start the search for a new car.
Insurance carriers that sympathize with your woes have a created a way to lessen the blow when it comes to replacing a totaled vehicle that just rolled of the lot. Some insurers offer new-car replacement insurance, an additional coverage that will pay for a brand-new car exactly like the totaled vehicle after the deductible is paid.
This is different from regular collision coverage that only pays the market value of a totaled car, less the deductible. The reason that the collision insurance payout will be less than what you paid the dealer is that as we all know the vehicle starts losing value as soon as you leave the dealership.
What is the cost of new-car replacement insurance?
As with all coverages, new car replacement coverage varies by the driver, vehicle, and state, so some insurance companies are reluctant to provide any details on the average cost. However, to give you a general idea, some big name carriers state that the extra cost for their new-car replacement coverage is about 2% of the collision insurance and 5% of the comprehensive insurance price. For example, let’s say you paid $1000 a year for collision and $1000 for comprehensive coverage, the added cost for the new-car replacement option would be an additional cost of about $70 a year to your auto insurance bill. However, remember the best way to get an accurate price is to get quotes from insurers, to begin a quote and check out rates from our carriers click here.
What’s the difference between new-car replacement and gap insurance?
First, gap insurance can be purchased from the financial institution that carries your new car loan and is added to your monthly payments or your auto insurance carrier may offer it. Gap insurance is designed to cover the vehicle depreciation. Instead of paying out to buy a new car, gap insurance will pay the difference between the insurance claim check for a totaled or stolen car and the amount left on the loan. Your collision and comprehensive coverages on your insurance policy will pay for the totaled or stolen vehicle less your deductible.
Things to keep in mind before purchasing gap insurance or new-car replacement coverage:
Be sure you fully comprehend the terms and conditions of each to decide which is more suitable for your needs and your budget. Different insurance carriers have different terms and depending on the insurer; gap coverage might be available for more years than new-car replacement coverage if you have a loan.
Make sure to get different quotes from different carriers to compare the costs of gap insurance and new-car replacement coverage if you owe more than the car is worth.
If you weigh your options and decide that you do not want to carry either gap or new-car replacement coverage, be sure that you have enough money in savings to pay off the remainder of your loan if the car is totaled and to put towards a down payment on a new car.
Read more about the factors that go into auto insurance rates here.