Imagine buying a brand-new car only to have it damaged or, in the worst-case scenario, completely totalled. That leaves it up to your insurance provider to decide how much you’ll receive for the damages.
The experts from Surex will discuss why one may need replacement value insurance and its key benefits.
If you have purchased a comprehensive or collision insurance policy, you cannot lodge a claim for the entire value of your car in case the accident leaves it totalled. However, a replacement insurance value car insurance policy can be beneficial in such instances.
How’s replacement value car insurance different from other insurances?
Whether a brand-new car or one you’ve been using for a few years now, it can cost you thousands of out-of-pocket dollars when damaged. And unless stated otherwise, your primary auto insurance doesn’t cover the actual value of your car. In fact, according to experts, it is estimated that vehicles lose about 30% of their value within the first year of purchase.
Also, in cases of theft or total loss accidents, where the insurer determines that your car is beyond repair, the compensation provided could be lower than the amount left on your car loan. It leaves you with the burden of thousands of dollars in replacement costs along with your already existing car loan.
In such situations, replacement value insurance can help you bridge that gap and ease your financial burden. It can allow you to get back on the road with the same or even an updated model of your car.
How does a replacement value car insurance work?
As mentioned, replacement value insurance helps ease the financial burden on replacement costs and damages if your car undergoes an accident that leaves it totalled.
If your car has been totalled, the insurance company will give you the money to purchase a vehicle of the same make and model. It means your insurer does not depreciate the cost of your car. However, it is essential to note that the car insurance replacement value does not count the deductible.
Vehicles, being a piece of machinery, quickly lose their value due to wear and tear. Therefore, you don’t get the same amount for selling it as when you bought it, even if it’s still as good as new. A car starts losing its worth the moment you drive it out of the showroom.
The depreciation rate of cars matters for insurance providers as well. It means that if you bought a brand-new car for $40,000, then your insurer will value it for lesser due to the reasons mentioned above.
That is, if you purchase a new car for $40,000, its value may drop to $36,000 (i.e., around 10%) in a few months. That’s the amount you can expect to get under a comprehensive or collision insurance policy. The same shall be the case even if your car undergoes an accident within only a short period after the purchase.
However, if you purchase replacement value insurance, you can lodge a claim for the entire value of your car. But, the insurance provider shall still charge the deductible amount.
Important things to know about a replacement value car insurance
- Coverage is available as an add-on as long as you have a collision or comprehensive coverage.
- Your car must meet the age and mileage requirements to qualify for the coverage, and these eligibility requirements depend on the insurance company you opt for. The usual age is two years old or newer.
- Like all other insurance policies, you’ll have to pay a deductible before claiming your insurance.
Car insurance replacement value vs. replacement cost endorsement
Replacement value insurance
The replacement value insurance coverage is suitable for newly purchased vehicles as well as demo and used passenger cars. The coverage is also available for snowmobiles and some luxury cars that are not eligible for replacement cost insurance.
It allows you to purchase the latest or similar car model from any dealership that you choose. You can even claim the lump sum coverage amount to buy a similar vehicle from another dealership. However, you’ll have to specify this option when making the contract, or you will be obliged to purchase a car from the same dealership you bought your first car from.
The dealers often offer replacement insurance coverage, but insurance agencies and brokers also provide the same. That is why, when you make a claim, you may need to submit it to two insurers; one for the basic insurance and the other for the replacement insurance.
Replacement cost endorsement
Replacement cost endorsements are only available for new vehicles and some demo ones with limited mileage.
It covers your vehicle’s replacement for a similar model at the dealership of your choice and also gives you the option to claim cash compensation instead.
This kind of coverage is a simple add-on to your already existing auto insurance, and you can only take it out through an agent or broker. In the event of a claim, you only need to submit the claim to one insurer.
Benefits of replacement insurance
If you have purchased a new car recently, then replacement value insurance might be worth considering.
The main benefit is that the claim amount is calculated based on the value of your car at the time of filing the claim. The duration of the contract is the essence of governing the insurance policy. It does not consider your driving record, so this coverage can be beneficial if you already have several recent claims.
Another benefit is that the cost of replacement insurance is fixed for the duration of the contract. The coverage period can usually last up to eight years. If the premium has been paid through vehicle financing, you will have to pay additional interest for your claim.
Several factors, such as buying a luxury car or frequently travelling on the roads, etc., can influence the type of car insurance one might need. Therefore, it’s essential to understand that the relevancy of car replacement insurance varies from person to person.
Moreover, each policy and its provisions will differ depending on the company, agency, dealer, or broker you decide to work with. Therefore, it is crucial to analyze and rethink your needs to have at least a faint idea of what you want.