Extra insurance for a new car: Three key coverages

By Allstate

Last updated: December 2023

There's nothing quite like getting a brand new car — from that new car smell to the way it drives. It's hard to imagine your new car getting dinged, let alone having it totaled, but what would you do if your new car needed to be replaced?

Beyond the minimum car insurance that your state requires for a new car, you may be able to purchase three additional key coverages to provide financial protection in case your car is damaged beyond repair. These coverages are:

New car replacement coverage
Repair provision coverage
Loan or lease gap protection coverage

Some insurers roll these coverages into one package. Read on to learn when you might want to consider this type of package and what each coverage helps protect.

Screen: Do I need new car replacement coverage?

00:02 Buying a new car is a major purchase — and an exciting one.

00:06 Congratulations!

00:07 Don't forget to think about your insurance needs.

00:11 The coverage you had on your previous vehicle may not be sufficient for your new car

Screen: Optional coverage: New car replacement coverage

00:18 New car replacement coverage is one type of optional coverage you may want to consider.

00:23 You may choose to purchase this in addition to the coverage you are required to buy.

Screen: Typically required by auto lender: Collision coverage comprehensive coverage

00:27 Most lenders typically require comprehensive and collision coverage.

00:32 These coverages help pay to replace a totaled car, but they factor in depreciation.

00:37 Due to depreciation, your new car loses value as soon as you drive it off the lot.

00:42 Say you bought a new car for $25,000.

00:44 Shortly after, your car was totaled in a covered collision.

Screen: Collision coverage payment, $20K depreciated value

00:48 Your collision coverage would pay up to the car's depreciated value — for example, $20,000

00:54 That wouldn't be enough money to buy the same brand-new car that costs $25,000.

Screen: Collision coverage payment, $20K depreciated value, $25K sales price, new car replacement coverage

00:58 But, if you had new car replacement coverage, you would be able to replace your totaled

01:04 car with a new one of the same or similar make, model and equipment.

01:09 If you own a brand-new car, consider adding this optional coverage to your car insurance

01:13 policy.

01:14 Check with your insurer to see if your vehicle qualifies.

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How do insurers define 'new car'?

The definition of a "new" car varies among insurers. Insurance companies may require one or more of the following before they will sell insurance policies designed for a "new" car:

The car model must not be more than two or three years old (for example, a "new" car insured in 2023 cannot have been manufactured before 2020)
The policy holder must be the original owner of the vehicle

You should also know that new car coverage typically expires when the vehicle is no longer eligible. Additionally, the coverage typically only applies to the new car for which you have purchased the coverage, not every vehicle on your policy.

Isn't standard car insurance enough?

Certain coverages, like collision or comprehensive, may help cover the cost of repairs, minus the deductible and up to your policy's limits. If the car is deemed a total loss, however, your insurance company will likely pay only what the car is worth at the time of loss (called the "actual cash value").

This can be problematic when you own a new car. The Insurance Information Institute notes that new vehicles can depreciate in value as much as 20 percent within their first year, and standard auto policies typically cover the actual cash value, which will likely be less than the purchase price.

This means that if your new car is totaled in a covered loss, the insurance reimbursement check may not be enough for you to purchase another new car. If you also have an auto loan, you would still be responsible for paying off the remaining balance, regardless of whether you can still use the car.

Key coverages for a new car

The following coverages may help protect you financially and get you on the road again should your new car be totaled or need major repair.

New car replacement coverage.

This coverage may help pay to replace a new car that's totaled. With this coverage, your policy may allow you to replace the totaled vehicle with a new one of the same make, model and equipment, or it may specify whether a similar model or certain dollar amount would be available.

Repair provision coverage.

Some policies may also cover the cost of repairs should there be only a partial loss to your new vehicle, regardless of its actual cash value. Repair provision coverage may help pay for repairs to a damaged vehicle on a replacement cost basis without deducting the depreciation in its value. Remember, however, that coverage limits still apply.

Loan or lease gap coverage.

Gap insurance may help pay the difference between the amount owed on an auto loan or lease and the totaled car's actual cash value. Even if your car can no longer be used, you're still responsible for any remaining loan or lease payments. So if the reimbursement check from the insurance company is not enough to cover what you owe, gap coverage may help pay for the remaining amount on a loan or lease — so you won't be stuck paying for a car that is now in the scrap yard.

Driving a brand new car can be a lot of fun, but having to replace one might come with some unexpected expenses — especially since the average cost of a new vehicle is more than $47,000. If you have a new car, you may want to consider new car replacement coverage, repair provision coverage and gap coverage, or a package that includes these coverages.

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