New car replacement insurance is a car coverage option that can be worth it if you have an expensive car and haven't saved enough money to buy a new one if you need to after an accident.It may be worth exchanging your vehicle for another car of the same make and model if it is a total loss.
Read on to find out if your car qualifies for trade-in insurance for a new car and if it would be a worthwhile investment for you.
- After a total loss, new car replacement insurance will pay for everything it takes to buy a new vehicle of the same make and model as your previous car minus your deductible.
- The value of your new car can drop by 11% once it leaves the dealership.
- Comprehensive coverage and collision coverage pay total losses against the actual cash value of your car, which may not be enough to buy a new car.
- You usually need to purchase comprehensive coverage and collision coverage to qualify for trade-in insurance for a new car, and your car will likely need to be within a certain age or mileage range.
- New car replacement insurance offers the most potential value if you have an expensive car that you can't afford if it breaks down.
On this page
- What is a new car trade-in insurance?
- How does the new car trade-in insurance work?
- What does the new car trade-in insurance cover?
- Is trade-in insurance for a new car worth it?
- Which companies offer trade-in insurance for a new car?
What is a new car trade-in insurance?
New car replacement insurance is optionalcar insurance supplementwhich can help you buy a new car if your insurance company reports your vehicleTotal loss.With this coverage option, your insurance company pays the value of a new car of the same make and model as your previous car minus your deductible.
For example, if you paid $50,000 for your car and have a $500 deductible, your new car replacement insurance policy could set you back $49,500 if your car is wrecked in an accident shortly after you buy it.
How does trade-in insurance for a new car differ from comprehensive coverage?
Unlike new car replacement insurance,mostfull coveragepolicies compensate total losses based on the car's actual cash value (ACV). This means that your insurance company takes into account depreciation factors such as the age or wear and tear of your car when determining how much to pay.
New cars can lose up to 11% of their value once they leave the dealership and can be depreciated by 60% within five years.As a result, if you paid $50,000 for your car and lost it in an accident five years later, a full coverage policy would probably only set you back $20,000 unless you upgraded your policy to cover replacement costs.
How does the new car trade-in insurance work?
Your car will likely need to meet certain qualifications to qualify for trade-in insurance for a new car. For example,many insurers require you to buycomprehensive and collision coveragebefore adding a new car trade-in insurance policy to your policy.
Each company also has its own age and mileage requirements for an eligible vehicle. For example, Liberty Mutual only offers replacement new auto insurance policies for vehicles that are less than a year old and have less than 15,000 miles on the odometer.Meanwhile, Allstate covers vehicles for two years, and Travelers' Premier New Car Replacement coverage lasts five years after thatbuy your vehicle.
What does the new car trade-in insurance cover?
New car replacement insurance should cover all unexpected events that cause the loss of the vehicle.That way it is an extension of yourscomprehensive insurance, which covers risks such as fire and theft, and yourscollision insurance, which relates to traffic accidents.
Since you must have both types of coverage if you want to buy replacement insurance for a new car, you can expect one of them to kick in first if your car is lost. For example, if someone steals your car, your comprehensive coverage will pay out the actual cash value of your car, after which your new car replacement insurance policy will cover the rest of the cost of buying the new car.You may be required to pay a separate deductible for each payout, depending on the details of your policy.
What is not covered?
Your new car trade-in insurance payout may not cover expensive modifications like subwoofers or custom paint unless you buycustom parts and equipment coverage. It also doesn't pay to replace items lost from your vehicle, as that would be covered by your owner's or renter's insurance instead.
If you use your car for business purposes, you may not be eligible for a new car trade-in unless you buy itcommercial auto insurancepolicy. In addition, your insurance company will not help you purchase a new vehicle if they discover that you deliberately wrecked the car in order to get an insurance payout.
Is trade-in insurance for a new car worth it?
A new auto replacement insurance policy will most likely be worth morebonusif you have an expensive vehicle and cannot afford a replacement out of pocket after an accident.You may not be able to bridge the gap between paying out the actual cash value of your comprehensive or damage claim and the nearly $50,000 cost of the average new car.
Keep in mind that the more valuable the car is, the faster it loses value, which means that new car replacement insurance offers the best value for more expensive cars.
Conversely, if it's not important to you to replace your totally broken car with a comparable car, then you may not need replacement car insurance. As long as you have comprehensive and collision coverage, the ACV payout you receive after a total loss may be enough to buyused car.
Please note that depending on your insurer,Your vehicle may be eligible for new car replacement insurance for as little as one year. Depending on the length of your insurance company's coverage period, you may feel comfortable waiving your new car trade-in insurance policy. This may be especially true if you live in a rural town or other area where there is little risk of your car being stolen or broken into.
Which companies offer trade-in insurance for a new car?
While new car replacement insurance is not available from all insurers, some of the companies that do offer it include the following:
Age of the vehicle
Up to 2 years
Up to 1 year after the start of your policy
Up to 2 years
Up to 24,000 miles
Up to 1 year
Up to 15,000 miles
Up to 5 years
Some insurers offerbetter car trade-in coveragewhich offers similar protection, even if you have an older vehicle. For example, if your car is declared a total loss after you've owned it for more than two years, Erie Insurance's Auto Security Supplement provides enough money to buy a comparable car that's two years newer than your previous vehicle.
In addition, some companies that do not offer new car trade-in insurance may still provide additional support if your vehicle is salvaged. For example, USAA, an insurance company for military families, offers car replacement assistance of 120% of the vehicle's actual cash value after total loss.
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Is trading in a new car the same as gap insurance?
New car replacement insurance is not the same as igap insurance. New car replacement insurance pays to replace your car with a comparable car after a total loss, while gap insurance pays the remaining balance of your loan if the amount owed exceeds the actual cash value of the total car.
Does my new car trade-in insurance get me a new car if mine is declared a total loss?
If your car is paid off and you have replacement insurance for a new car, your auto insurance company will pay you what it would cost to buy a new car of the same typecreate and modelas your previous car minus your deductible.
How do I know if my car qualifies for trade-in insurance?
Each insurance company has its own eligibility requirements for new car replacement insurance. In general, your car qualifies if it falls within a certain age range (usually between one and five years) or mileage and is already covered by comprehensive coverage and collision coverage.
Do I need replacement car insurance?
You may need replacement auto insurance if you have an expensive vehicle that you can't afford after an accident. However, it may not be worth it if you have enough money saved to buy a replacement car or if you feel comfortable buying a used car after an accident.
- Allstate. “Trade in for a new car.” Accessed April 3, 2023.
- Carfax. "Car depreciation: how much it costs you.” Accessed April 3, 2023.
- Freedom mutual. “New car replacement insurance.” Accessed April 3, 2023.
- Passengers. "Trade in for a new car.” Accessed April 3, 2023.
- The Kelley Blue Book. "The average price of a new car exceeds $49,500.” Accessed April 6, 2023.
- US family insurance. "How to get a custom car policy.” Accessed April 6, 2023.
- Farmers. "Types of car insurance and policies.” Accessed April 6, 2023.
- Erie Insurance. "Trade-in for new and used car.” Accessed April 6, 2023.
- USAA. “Full coverage auto insurance.” Accessed April 3, 2023.