What is replacement car insurance?
August 19, 2019. If you are buying a new vehicle, you may want to consider replacement insurance in addition to your standard car insurance to protect your investment for its full value.
Why is replacement vehicle insurance a good idea?
A new vehicle can lose up to half its value in four years. If you are in a collision and your vehicle is written off, you will only be reimbursed its depreciated market value. In addition to your insurer paying less as your car gets older, according to Optiom, new cars can increase in price by about 2.5% every year. So, the longer you have your car, the bigger the difference will be between its depreciated value and the cost of a new car to replace it.
How does replacement car insurance work?
- You can go to any dealer for replacement parts or to replace your car.
- If parts cannot be repaired, they will be replaced with new original equipment manufacturer parts.
- Your deductible will be partially refunded.
- If your car is damaged, depreciation will not affect your claim payment.
Is replacement insurance better than a replacement cost endorsement?
It is possible to add a replacement cost endorsement to your car insurance, but it is not the same as replacement insurance.
- A replacement cost endorsement may be terminated after several claims, but replacement insurance will stay valid for a fixed term of up to 7 years.
- Your replacement insurance premium is locked in at the same price for the entire term.
- Replacement insurance is for new and used cars, while a replacement cost endorsement can only be added to insurance for new vehicles.
When do you need replacement insurance?
If you are paying off a loan on your vehicle or lease your vehicle
If you are leasing or took a loan out to pay for your car, you will need to keep making those payments even if your vehicle is written off in an accident. Your primary car insurance likely will not cover any payments owed on your vehicle.
If you cannot afford to replace your car
If you would not be able to pay the difference between the depreciated value of your vehicle and its replacement cost if your car was written off, replacement insurance would be beneficial. Your car would be covered at what it would cost to replace, not its current depreciated value.