Is New Car Replacement Insurance Worth It?
Are you considering whether getting new car replacement insurance is worth it? You may have recently purchased a new vehicle from a dealership or bought new primary insurance for one you already own. Now is a good time to consider what vehicle replacement insurance can provide.
New car replacement coverage helps protect your investment in a vehicle against depreciation in the event of a total loss. It covers the difference between the payout from your primary insurance provider and the cost of a brand-new replacement for the same type of vehicle.
As a quick example, a new car can depreciate as much as 18% the first year you own it. If the new car costs you $50,000, that’s almost $9,000 in lost value, and it gets worse from there. Try this handy calculator to see just how much your vehicle may depreciate. Replacement insurance will cover that depreciation difference to help you get a new vehicle. In some cases, that difference can be as high as $60,000, making replacement insurance a worthwhile investment.
But does this type of coverage make sense for you? That will depend on several factors, including your vehicle and individual circumstances. When deciding whether you want to add replacement coverage, consider:
• How long are you planning to keep the vehicle, and what is the length of coverage available?
• How quickly will your car depreciate? Newer and more expensive cars depreciate faster, as do certain brands and models.
• If you can afford to replace your car without this replacement coverage.
• The amount the insurance provider charges for coverage.
What does new car replacement insurance cost?
You have options for the length of coverage you can buy and where you can buy new car replacement insurance. However, pricing can vary widely.
An annual policy on certain vehicles can start as low as $20 per month. Buying seven years of coverage can cost much more, especially on a luxury vehicle.
The exact amount you’ll pay depends on:
• The length of coverage.
• The type of vehicle you own.
• Where you buy a policy.
The best way to get a definitive answer is to get a quote.
It’s important to know that a replacement cost endorsement is not the same as full replacement insurance. A replacement cost endorsement is only available on brand-new vehicles through a primary insurer. Costs can increase significantly year after year. Your primary insurer can also end it after several minor claims or not renew it for many reasons. If you switch insurers to save premiums, you lose the coverage.
In comparison, replacement cost insurance will stay valid for a fixed term of up to seven years. The premium is a single price for the entire term, and you can purchase it for both new and used vehicles. It is separate from your primary insurance, so you don’t need to worry if you switch providers.
Where can I get new car replacement insurance?
You can buy coverage from different sources, such as primary insurance providers, direct providers, and dealerships. Replacement coverage is widely available in Alberta and British Columbia. ICBC replacement insurance is available in BC, but it is often more expensive than coverage provided by independent insurance providers.
Dealerships generally will only offer coverage at the time of sale of a brand-new vehicle. They include a markup commission on the sale. It may seem convenient, but really, you’re just overpaying.
Direct providers can offer coverage for vehicles up to five years old. They often include a suite of add-ons that can help you with deductibles or diminished value. Direct providers often have the best price and coverage options.
Your primary insurance provider may offer it for a new to three-year-old vehicle with low mileage. Again, full replacement cost insurance is not the same as an endorsement. The cost can be comparable to that of other specialty providers. ICBC replacement insurance can be expensive.
Am I eligible for new car replacement insurance?
That’s a good question! Eligibility can vary from provider to provider and depends on your location and vehicle type. The age of the vehicle and the number of kilometres it has driven are also factors. The difference between the actual cash value (ACV) and replacement cost only grows over time. That’s why insurers limit how long they’ll cover your new car. There are also some prohibited vehicle uses, such as ride-sharing, commercial driving, or driving more than 40,000 km a year.
It’s always a good idea to confirm eligibility with a specific provider. You will also need to have comprehensive and collision coverage to qualify.
Summary
Is replacement insurance worth it? It most certainly can be worth having. It will cost you much less in the long run than your primary insurance does. After a few years, it can even end up paying out far more than your primary insurance. Shop around and find out what is being offered. Ultimately, it is up to you to consider if the cost and benefit outweigh the risk of not having it.
Do you have any further questions or would you like to learn more? One of our licensed agents would be happy to connect with you to discuss the coverage. You can also request a quote at any time.