New vehicles can bring on great excitement in the beginning, but they can also depreciate very quickly. A new vehicle can depreciate 10% in the first few months and as much as 20% or more in the first year. This is where replacement cost coverage insurance comes in.
Depending upon the amount of the purchase price you borrowed, if you get into an accident with a new car, you could be out several thousands of dollars should you wish to replace it. Furthermore, you could also be upside down on your loan. This means that you may owe more on your vehicle than your claim on the vehicle. The greater the amount of the purchase price you borrow and the longer the payment schedule the more likely that you could be upside down on your loan.
Your auto insurance policy does not automatically provide coverage to make up the difference. Replacement vehicle insurance solves this problem by giving you sufficient funds to replace your vehicle with a new one of the same make and model minus your deductible. With this replacement coverage, your claim amount from the insurance company would not be subject to depreciation. Generally, in order to add on replacement coverage, you must first have both collision and comprehensive coverage as well.
THERE ARE LIMITS AS WITH ANY COVERAGE
Car replacement insurance does have limitations. You will need to check with your insurer regarding the limitations. Generally, this add-on insurance coverage is limited to vehicles less than two years old based upon the newest model. There may also be mileage requirements that limit the number of miles on the vehicle to qualify for the coverage. In many cases, there are time frame limits that require you to purchase this coverage within the first six months or so of owning the vehicle.
Vehicle replacement coverage cannot be purchased in tandem with GAP coverage. GAP coverage comes into play if your vehicle is a total loss. GAP coverage pays the difference between what you owe on your vehicle and the vehicle’s actual cash value.
As always, check with your FAPCO agent to find out what coverage is available, and the limits of coverage offered by your insurer.