If you’re buying a new vehicle, you could have some unexpected gaps in your standard auto insurance policy. All auto insurance policies will pay up to the limits carried on the contract for third-party liability losses and other medical expense claims.
Where it gets a little confusing is when you’re filing a damage claim after a serious accident.
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Physical damage is a first-party coverage that helps you pay to replace your car or repair it when the damage isn’t too bad. There are strict and easy to define limits on how much third-party coverage you have but the limits aren’t as cut and dry for physical damage.
Since most settlements for claims involving a new car won’t pay to replace it, here’s what you need to know about special endorsements:
What is a total loss?
If you file a damage claim, the claim made against your policy will be to cover repairs or to help you replace your vehicle.
If your car is deemed irreparable or the cost to repair the damages exceeds what the car is valued at on the fair market, it will be classified as a total loss physical damage claim.
Cars always lose value when you purchase them new. In fact, according to depreciation data compiled by Edmunds, your car will lose nine percent of its original value when it’s driven off the lot.
At the end of the first year of ownership, your car will have lost nearly 20 percent of its value.
You may feel like the fair market value of your new vehicle will be close to what it was when you purchased it, but the insurer’s valuation may surprise you.
When you file a claim, it’s your claims adjuster’s job to calculate the value of the car at the time of the loss. While you have the option to appeal the valuation, it’s still the adjuster that you’ll deal with.
Will you receive enough to replace your car if you total your car?
If you have a newer vehicle, filing a total loss claim could cost you more than just a deductible.
The last thing that you want is to have to downgrade to a cheaper vehicle with fewer features because you can’t afford to pay the difference between what you’re being paid for your total loss and what the new vehicle will cost.
Under a standard auto insurance policy, your insurance will pay you no more than the Actual Cash Value (ACV) of your vehicle when it’s totaled. Since your contract says that you’ll receive up to the ACV of your car, you need to know what that might include.
Here’s what’s included in a total loss settlement offer:
- Current fair market value of your vehicle based on similar listings in your area
- Estimated sales tax and licensing fees for a replacement vehicle
- Estimated registration costs for a replacement vehicle
- Cost to tow vehicle or store it before repairs
What is “New Car Replacement” coverage?
Every insurance carrier has its own list of product offerings that differentiates it from the competition. In most states, companies aren’t required by law to offer their customers the option to buy New Car Replacement coverage.
Even though it’s not a state-mandated option, it’s an option more and more carriers are choosing to offer.
New car replacement is an endorsement that can be added to your policy to provide you with more coverage than what’s prescribed under a standard personal auto contract.
It provides you with extra protection when you own a qualifying car so that you can buy a new car of the same make and model without having to come out of pocket.
When will a car qualify for New Car Replacement coverage?
You shouldn’t try and add the special new car coverage to all of the vehicles that you purchase. It’s important to verify that your covered auto will qualify for you’re left paying a claim that won’t be honored.
The requirements for your vehicle to qualify are similar from company to company. Common requirements for new car protection are as follows:
- Your car is less than one year old (some companies have a three-year limit)
- Your car has less than 15,000 miles on it (some companies allow for 15,000 miles per year)
In most cases, your car insurance carrier won’t just give you cash to go out and buy a car unless you can show that it’s the same manufacturer and model type with similar features.
There are often requirements that the new car won’t be more than six months old. The deductible that you have on your plan will apply still and it must be paid.
Is New Car Replacement the same as GAP insurance?
If this coverage sounds like GAP insurance, you need to understand the differences.
GAP insurance is a lot more flexible than new car coverage. It will pay for the gap between the value of your car and the balance of your loan to ensure that the car is paid off regardless of the fair market value at the time.
New Car Replacement is a coverage that gets you a newer car instead of focusing on paying off your loan.
No one wants their car insurance to pay to repair part of their car rather than all of it. Since you don’t want to have to downgrade just because you’ve has an accident, you need to consider what type of coverage you need to add to your insurance for full protection.
Get auto insurance quotes online instantly right here and you can add the new car replacement endorsement to see how much more it will cost.