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.
Also called ‘new for old’ car insurance, this type of cover can replace your car with a brand-new one of the same make, model and specification if yours is stolen or written off.
In cases where a suitable car’s not available, the insurer may instead reimburse what you paid for the car or the manufacturer’s current list price, usually whichever is lower.
New car replacement cover only applies to vehicles that are fairly new though - usually under 12 months old. If your car’s older and it’s stolen or written off, your insurance provider will only offer you its market value at the time of the incident.
Some comprehensive policies offer new car replacement cover as standard. We checked Defaqto, and out of 325 comprehensive policies, 95% offered new car replacement cover.
Check your policy documents to see if it’s part of your existing cover, or compare policies to find insurance that includes it.
We’ve all heard the saying that a new depreciates as soon as you drive it off the garage forecourt.
With these statistics in mind, it’s important to be aware that if your new car’s involved in an accident and written off, or stolen within a year of purchase, your insurance provider would only reimburse you for its market value at the time of the incident - unless you have new car replacement cover included in your policy.
With this cover in place, you’d instead receive a brand-new replacement car of the same make, model and specification. Or a payment to cover the cost of buying a brand-new one.
So if that’s important to you, look for a policy that offers new car replacement cover.
To be eligible for a new replacement car under this type of insurance, you’ll need to meet a few qualifying conditions. These usually include that:
‘Ex-demonstrators’ and ‘nearly new’ cars don’t usually qualify for new car replacement cover, but it’s always worth checking with the insurer.
You’ll only be eligible for a new car replacement after certain events.
As is the case with most policies, new car replacement insurance won’t provide cover if your car’s stolen or damaged because of negligence (leaving it unlocked or unattended with the engine running). Wear and tear and mechanical breakdown are also not covered.
You also won’t be offered a new car if your vehicle’s damaged in an accident and the cost of repairs is less than 50% to 60% of the price you purchased it at (amount can differ between insurers). In these circumstances, the insurer will usually pay for repairs and replace damaged parts instead.
If your car doesn’t qualify, or your insurance doesn’t cover new car replacement, you’ll be offered the current market value of your car by your insurer.
It’ll probably be less than you paid for it, as a new car loses value quickly.
So, if you wanted to replace it with a brand-new car, you’d have to pay the difference between the amount your insurer gives you and the value of a new car.
For example, let’s say your new car originally cost £15,000. It’s written off ten months later and its market value has dropped to £10,500. This is the amount the insurer would pay out. So you’d have to pay the other £4,500 yourself to purchase a new similar car.
If your car insurance doesn’t offer new for old cover as standard, you could look at taking out a guaranteed asset protection (GAP) insurance policy.
It makes up the difference between what an insurance company offers you if your car is written off or stolen (its current market value) and what you originally paid for the car, or how much finance you still owe on it.
GAP policies are designed to provide you with enough funds to buy a new replacement car, or to ensure you clear any outstanding debt if you bought your vehicle on finance.
With an agreed-value policy, you set the value of your car with the insurer and they’ll pay out that amount if your car’s a total loss, regardless of its market value.
It’s an option often suitable for people with specialist or modified cars that are worth more than others of the same age and model.
Last checked 3 January 2023