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What Happens If Your New Car Is Totaled?

By July 16, 2014May 21st, 2020Insurance
New car smell. It’s just one of the joys of buying a new car. Having a new ride, flawless interior and technology upgrades are just a few more.

But, there is a risk to buying a new car. The car may depreciate in value quickly. If you’re in an accident, your insurance coverage may not be enough for you to buy the same new car again. Or, you may owe more on your car loan than you’ll get from your insurance policy.

That’s where New Car Replacement Coverage and GAP Coverage come in. Here’s how they work. If you’re in an accident and your vehicle is determined to be a total loss:

  • New Car Replacement Coverage pays for a new vehicle of the same make and model, up to percentage of the original vehicle’s Manufacturer’s Suggested Retail Price.
  • GAP Coverage includes New Car Replacement for the first year of ownership, and then will pay the difference between the value of your vehicle and the amount of your original loan. (If you lease your new vehicle, you may already have GAP coverage. Please check your lease agreement.)

You can buy New Car Replacement Coverage and Gap Coverage as add-ons to your auto insurance policy. (They are called endorsements.) You can add both New Car Replacement Coverage and Gap Coverage to your policy. Or, you can add New Car Replacement Coverage only to your policy. You can’t purchase Gap Coverage without buying New Car Replacement Coverage.

New Car Replacement Coverage: An example of New Car Replacement Coverage in action:

  • You buy a new car for $19,000.
  • Six months later, your car is totaled in an accident.
  • The value of the car is $15,000. But, it costs $19,000 to buy the same car again.

If you have New Car Replacement Coverage, the insurance company will pay to replace your car. That’s right. They will pay the full $19,000 to buy you the car.  

GAP Coverage: An example of GAP Coverage in action:

  • You buy a new car for $40,000.
  • Two years later, your car is totaled in an accident.
  • The value of the car is now $24,000. But, you still owe $28,000 on your loan.

If you have GAP coverage, you can be reimbursed up to 110% to 120% of the value of the vehicle. In this case, your loan will be paid in full.

We have several companies that offer a New Car Replacement Coverage endorsement which provides full protection for the first year after you buy a new car. We also have companies that provide GAP Coverage protection.