New-Car Replacement Insurance Explained

Auto Insurance

An accident that totals your new car will be costly even if you have collision insurance. The insurance check will be less than what you paid for the car and, if you took out a loan, could be less than what you owe, leaving you with nothing to spend on another vehicle.

New-car replacement insurance, a special option offered by some insurers, offers to ease the financial pain. The coverage pays for a brand-new car of the same make and model as the totaled vehicle, minus the deductible.

Regular collision insurance pays only the market value of a totaled car, minus the deductible. The collision insurance payout will be less than what you paid the dealer, because a vehicle starts losing value before the new-car smell wears off.

» MORE: Understanding collision and comprehensive insurance

Generally, new-car replacement insurance:

  • Costs extra
  • Applies only to newer cars
  • Is available only if you buy collision and comprehensive insurance
  • Reimburses you for the cost of a new vehicle of the same make and model, minus the deductible, if your car is declared a total loss

Who offers new-car replacement insurance?

Insurer Yes No
American Family x
Geico x
Liberty Mutual
Progressive x
State Farm x
Note: The option may not be available in every state.

How new-car replacement insurance works

Coverage and eligibility details vary by insurer.  Here’s a look at how the programs work.

Insurer Eligibility requirements Start comparing
Allstate Vehicle must be 2 model years old or newer. Get a quote
from Allstate
Farmers Vehicle must be 2 model years old or newer and have fewer than 24,000 miles. Get a quote
from Farmers
Liberty Mutual New-car replacement:

  • Eligible cars are less than 1 year old and have fewer than 15,000 miles

    Better car replacement:

  • Reimburses for same model one year newer, with 15,000 fewer miles on it than totaled car.
  • Available for car of any age
  • Get a quote
    from Liberty Mutual
    Nationwide With Allied, a Nationwide company; applies to cars up to 3 model years old, then is replaced by gap insurance. Get a quote
    from Nationwide
    Travelers Vehicle must be in its first five model years. Does not cover a stolen car or one damaged by fire or flooding. Also includes gap coverage and lower deductible for glass claims. Get a quote
    from Travelers

    How much new-car replacement costs

    The cost varies by driver, vehicle and state, so some insurance companies are hesitant to provide average cost details. To give a rough idea, Allstate says the extra cost for its new-car replacement coverage is about 2% of the collision insurance and 5% of the comprehensive insurance price. So if you paid $500 a year for collision and $500 for comprehensive coverage, the extra cost for the new-car replacement option would add about $45 a year to your car insurance bill. The only way to get an accurate price is to get quotes from insurers.

    New-car replacement vs. gap insurance

    Gap insurance is a way to cover vehicle depreciation if you have a car loan. Rather than paying out to buy a new car, it pays the difference between the insurance claim check for a totaled or stolen car and the amount owed on the loan. (Collision and comprehensive insurance pay for the totaled or stolen car.) Gap insurance prices vary, but generally the coverage costs a few dollars a month, according to Esurance.

    » MORE: Is gap insurance worth it?

    Before you buy gap insurance or new-car replacement coverage:

    • Understand the terms and conditions to decide whether either is suitable. Depending on the insurer, gap coverage might be available for more years than new-car replacement coverage if you have a loan.
    • Get quotes to compare the costs of gap insurance and new-car replacement coverage if you owe more than the car is worth.
    • If you forgo gap or new-car replacement coverage, make sure you have enough in savings to repay a lender if the car is totaled and for a down payment toward another car.

    » MORE: Find the best cheap car insurance