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 get you a new vehicle. In some cases that difference can be as high as $60,000 which can make replacement insurance worth it.
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 you are planning to keep the vehicle and the length of coverage available.
• How quickly your car will 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 (you can get a quote here)
An annual policy on certain vehicles can start as low as $20 per month. Buying seven years of coverage can cost a lot more, especially on something like a luxury vehicle.
The exact amount you’ll pay depends on:
• The length of coverage.
• The type of vehicle you own.
• Where you buy the 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. It can increase in cost significantly year after year. Your primary insurer can also end it after several minor claims or not renew it for many reasons. If you decide to 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 one price for the entire term, and you can buy it for new or 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 some primary insurance providers, direct providers, and dealerships. Replacement coverage is widely available in Alberta and British Columbia. In BC, ICBC replacement insurance is available but is often much more costly than independent insurance providers.
Dealerships generally will only offer coverage at the time of sale of a brand-new vehicle. They include a mark-up 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 a three-year-old vehicle that has low mileage. Again, full replacement cost insurance is not the same as an endorsement. The cost can be comparable to 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 will depend on where you live and the type of vehicle you have. How old the vehicle is and how many kilometres it has 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 provide coverage for 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 check with a specific provider to confirm eligibility. You will also need to have comprehensive and collision coverage to qualify.
Is replacement insurance worth it? It most certainly can be worth it to have. 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.