How Does New Car Replacement Insurance Work?

The feeling of buying a brand new car, brushing your hand over the smooth bonnet, and sitting behind the wheels bubbling with excitement and pride is exhilarating. But the moment the initial euphoria fades away, a very practical thought strikes your mind, and that is, the value of your car will decrease each day.

No matter what model or brand you choose, the sad truth is, the value of automobiles depreciates at a drastic rate, approximately 20% in a period of 2 years, and needless to say, the rate of depreciation keeps increasing with each passing year.

Now you might feel that the only time this depreciation might affect you is when you are planning to sell the car but you are missing the bigger picture here. The value of the car also determines the coverage you will be getting from your insurer. So no matter at what price you bought your car, the coverage that you will get if your car is totaled in an accident will always be a lot less than its actual price and you will be left in financial trouble without a ride.

You can’t stop the value of your car from depreciating, so what should you do? What you need is new car replacement insurance.

And if you want to check out the best deals on new car replacement insurance in Calgary, read here.

What Is A New Car Replacement Insurance?

If you have purchased new insurance for your car, then in case your car gets totaled in an accident, you will get the value for a brand new car of the same model excluding any deductibles from your insurer instead of the depreciated value.

Let us take an example, suppose you bought a car worth $50,000, and after a few years the value depreciated to $43,000. Now, if your car meets an accident where it is totaled, then under regular auto insurance, you will be paid $43,000 which means, if you want to buy the same car again, you will have to pay the remaining cost from your own pocket but with a new car replacement insurance, you will get whatever is the current price of a brand new car for the sample model.

Things To Know About New Car Replacement Insurance

The deal that a new car replacement insurance policy offers is pretty lucrative, but there are certain things that you should know before you consider purchasing one for your own car:

New Car Replacement Insurance Is An Add-On

The most important thing is that you should know that this benefit cannot be purchased independently. If you have comprehensive or collision insurance, only then you can purchase this as an Add-On.

You Will Have To Pay Deductible

Most new car replacement policies have a deductible that needs to be paid before you claim the coverage. A deductible is basically an amount that you pay out of your own pocket before the insurer starts paying you. For example, If your insurer is liable to pay you $25,500 and your deductible is $500, then you will receive $25,000 from the insurance company

The Age And Mileage Requirements Have To Be Met

Although this add-on comes at an additional cost, there are certain requirements that your car needs to qualify before it is considered eligible for the benefit. New car replacement insurance typically applies to only new cars. The age and mileage limit varies from company to company.

Common Rules To Know Before Buying New Car Replacement Policy

While the exact terms and conditions of the policy will depend on the insurer, there are two common rules you should be aware of before buying a new car replacement policy.

Purchase Window

Most insurers have a purchase window which is the time frame between the purchase of your car and your purchase of the insurance add-on. The exact time frame varies from company to company. While some companies require you to buy the add-on within the first 6 months of your new car, some have a much more lenient policy and lets you add the benefit to your existing auto insurance at any time, provided it is done before the accident.

New Car Replacement Insurance Cannot Be Bought With Gap Insurance

You cannot have both of these benefits for the same car; you will either have to choose new car replacement insurance or gap insurance.

Gap insurance and new car insurance are quite similar and that is another big reason why you should know the difference clearly.

If you buy gap insurance for your car then it will help you pay off the remaining amount on your car loan in case your car is totaled in an accident and the remaining amount of the loan is more than the depreciated value of the car.

Is New Car Replacement Insurance Worth It?

Well, the answer to this question depends on you and a few other factors like what is your current financial situation, how often do you use our car, if it is prone to accident or not, and lastly the model, cost price, and the depreciated value of the car.

All of these combined together can tell you if buying a new car replacement will be worth it for you or not and although this add-on comes at an extra price, the yearly amount is not that high. After all, if you have bought a brand new car, adding an extra layer of protection won’t do any harm, right?

End Note

That was all that you needed to know about new car replacement insurance, how it works and if it is worth it not. You need to keep in mind that every financial decision is subjective and will differ from person to person. So whenever you are taking financial advice, always compare it with your situation first before proceeding to the next step.

TIME BUSINESS NEWS

TBN Editor

Time Business News Editor Team