New car replacement insurance

This type of car insurance cover does what it says on the tin – insurers will offer a brand-new car of the same make, model and specification if yours is beyond repair or stolen.

Amy Smith

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How to get new car replacement cover

Most comprehensive car insurance policies will offer new car replacement. We checked Defaqto, and out of 363 comprehensive policies, 94% offered new car replacement cover as standard. 

It’s a common feature in third party fire and theft (TPFT) insurance too - 122 out of 193 policies offered it as standard.[1]

Check your policy documents to see if it’s part of your existing cover, or compare policies to find insurance that includes it, if you need it.

Key points

  • If your new car is badly damaged or stolen, your insurer may provide you with a like-for-like new car
  • It applies to cars less than a year old, and the cost to repair it needs to be at least 60% of what you’d pay for the car brand-new. There are usually mileage limits too
  • You could take out Gap insurance as an alternative

How does it work?

There are some conditions to meet before your car qualifies for replacement cover.

Repair versus replacement

Your car has to be damaged enough to need replacing rather than repairing.

Usually, the cost of fixing your car has to cost more than a certain percentage of the price for a new vehicle – often 60%, including taxes.

For example, if the list price of your car is £10,000, it would have to cost more than £6,000 to repair it for it to be eligible for new car replacement.

If your car is stolen, it must be declared a total loss to qualify.

Age and mileage limits

The car needs to have been bought within a certain timeframe, usually 12 months - some policies have a set mileage limit too.

You must be the registered owner of the car or have permission from the lender if you’ve bought it with a loan.

If your car was pre-registered, the Financial Ombudsman Service treats the vehicle as if it was first registered when it was sold by the dealer.

19% of comprehensive car insurance policies have a mileage limit, while 87% of policies have a timeframe for new car replacement[1]

Other limitations

You might not be covered for extended warranties, though this depends on the insurer.

You’ll also be charged a deductible amount (excess), though you might not have to pay this if you weren’t at fault.

Like with age and mileage, there might be a maximum weight limit for the car to be eligible and you might not be covered if your car is written off due to fire or flooding.

On the plus side, if your insurer can’t find a similar replacement car, you can search for one yourself and your insurer must honour it.

What to do if you don’t have new car replacement cover

If your car doesn’t qualify, or your insurance doesn’t cover new car replacement, you’ll be offered the market value of your written off car by your insurer.

It’ll probably be less than you paid for it, as your car loses value over time. You’ll have to pay the difference between the amount your insurer gives you and the value of a new car yourself.

  • Example: Your car originally cost £10,000. It’s lost value over time, so your insurer will only pay £5,000 if it’s written off. You’d have to pay the other £5,000 needed to purchase a new car yourself.

Alternatives to new vehicle replacement cover

There are a couple of alternatives if you don’t have replacement car cover.

Guaranteed asset protection (Gap) insurance

You can get Gap insurance if you’re worried you wouldn’t be able to afford a new car or pay off any remaining amount on a vehicle loan.

Gap insurance makes up the difference between what your insurer pays out and how much your car originally cost.

As soon as you have the details of your new replacement car, pass them on to your insurer to make sure you’ve got insurance in place.

Don’t forget to let your car insurance provider know the details of your replacement car after you’ve bought it.

Agreed-value car insurance

This allows you and your insurer to negotiate a price to cover the cost of buying a replacement car when you first arrange the insurance policy.

Better car replacement is another option. With this type of cover, your current vehicle would be replaced with a newer model that has less mileage.

Is new car replacement insurance worth it?

Only you can decide whether new vehicle replacement cover suits your circumstances.

If you’re worried about being left out of pocket in the event of a write-off, then it could give you peace of mind.

However, there are alternative cover options available, and it might not be worth it if you can afford to pay towards a new car yourself.

Remember that you can always challenge your insurers decision to write-off your car if you think it could be repaired or is worth more.

By Amy Smith

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[1]Last checked 27 August 2019

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