The Loans Canada team sits down with Gary Schwartz of the Canadian Lenders Association to talk about open banking.
Do You Need New Car Replacement Insurance?
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Responsible drivers do what they can to stay safe on the roads and make sure that their vehicles are protected against any incidents that would require a lot more than just a touch up to repair. In unfortunate cases, cars involved in accidents are totalled and are no longer deemed fit to be driven.
Having a new car replacement policy can help compensate you just enough to replace your totalled vehicle with one of similar make and model, rather than just getting reimbursed for the actual cash value of your car.
Let’s go into more detail about what new car replacement insurance is and if it’s worth paying a few extra dollars a month for.
What Is New Car Replacement Insurance?
If your vehicle is ever damaged beyond repair as a result of a collision, your insurance company will consider it a total loss. In turn, you would be paid out an amount equal to the actual value of your car to be put towards the purchase of a new one.
The problem is, that amount may be a lot less than what you paid for your car when you first bought it, leaving you hundreds or even thousands of dollars in the hole. In many cases, the actual cash value paid out won’t cover the cost to buy a similar car.
To solve this problem, you may want to consider taking out a new car replacement insurance policy, which will pay out just enough to cover the cost of a similar vehicle to the one that was totalled.
New car replacement insurance will compensate you financially if your car is damaged to the point that it isn’t worth repairing. The payout will be sufficient enough to buy another vehicle that’s either the same or a similar make and model, rather than an amount that’s only equal to the depreciated value of the damaged vehicle.
Without a new car replacement insurance policy, you would have to make up the difference if you want to purchase another car that is the same or very similar to the car that was totalled.
Once your car has been replaced, your insurance provider may transfer your policy to the new car. Or, the insurer may end the previous policy and require that you take out a new one for the new vehicle.
Be sure to go over the fine print in your policy’s contract to verify how your policy will be affected and what steps you need to take to ensure that your new car is adequately insured.
Are You Eligible For New Car Replacement Insurance?
In order to qualify for new car replacement insurance, you’ll need to meet certain eligibility requirements, including the following:
- You must be the original registered owner of the car.
- You may require permission from your lender if you bought the car with a car loan.
- The vehicle must be under a certain age and mileage limit.
- The car must be damaged to the point that it is deemed totalled.
- If the car is stolen, it must be considered a total loss within a certain period of time.
- You will need to have collision and comprehensive insurance.
- You may qualify if the car was a registered demo with the dealer.
Is New Car Replacement Insurance The Same As Gap Insurance?
Gap insurance — which stands for ‘guaranteed auto protection’ or ‘guaranteed asset protection’ — is an optional type of auto insurance that protects you if your car is totalled or stolen. The name is appropriate because this policy essentially bridges the ‘gap’ between the value of your car and the amount you still owe on it. This can be very helpful if you owe more on your car loan than what the vehicle is valued at.
Some people may confuse gap insurance with new car replacement insurance, but they are not the same. New car replacement insurance can help you purchase a similar car to the one that was totalled, while gap insurance is designed to help you pay off the old one. Gap insurance will cover the difference between what you still owe and what the car is worth, less any deductible.
Pros And Cons Of New Car Replacement Insurance
- You can get a similar vehicle. With other types of auto insurance, you would be reimbursed for the depreciated value of your current vehicle, which likely won’t be enough to cover the entire cost to replace your car with a similar one. With new car replacement insurance, you can be reimbursed for an amount that will help cover the cost of buying a new car of a similar make and model.
- The deductible can be reimbursed. Like any other insurance plan, a deductible is usually required when you file a claim with your new car replacement insurance policy. The good news is that the deductible will be reimbursed by your new car replacement policy.
- Your driving record is not taken into consideration. If you have a history of filing many claims, the fact that your driving record won’t be taken into consideration may be beneficial to you. Instead, the premium for this policy is determined based on your car’s value.
- Additional cost. Carrying a new car replacement insurance policy will mean paying higher premiums on your insurance plan.
- Not all features may be covered. Only the accessories included in your original purchase contract will be covered. So, if you decide to have a new navigation system installed in your new car, for instance, you won’t be compensated for it.
- Limited purchase window. You will only be able to buy a new car replacement insurance policy within a limited time frame, depending on what your insurance provider allows. For example, your insurer may require that this policy be purchased no more than 6 months after you buy a new car.
- Your car’s insured value will drop. Once your car exceeds your insurance company’s mileage or age limit, the value of the vehicle will sharply decline. That means your replacement car will not be worth as much as when you initially purchased your new vehicle.
- Similar replacements might not be available. In some cases, insurance providers may say that they can’t find a replacement vehicle that’s similar enough to the totalled vehicle. If that happens, you may be forced to find a replacement vehicle on your own.
- Certain warranties may not be covered. If you purchased extended warranties on your totalled car when you first bought it, you may not be compensated for what you paid for them.
- Certain events may not be covered. If your car was destroyed as a result of a flood, fire, or theft, you may not be covered.
Should You Get New Car Replacement Insurance?
If you recently purchased a new car and are concerned about what type of reimbursement you would receive in the event that it is damaged beyond repair following an accident, then a new car replacement insurance policy may be worth considering. Since vehicles start to depreciate the moment you drive off the dealership’s lot, this type of policy might save you quite a bit of money if you ever have to replace your vehicle at some point.
New car insurance may be worth it even more if you drive a luxury car since these types of vehicles are more expensive to replace and tend to depreciate faster than the average car.
Be sure to assess your situation before buying into this policy, as it will cost you a few extra bucks. Also, take into consideration what your insurance company’s requirements are in terms of vehicle age and mileage, as you may not have coverage after a certain point.
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