What Type Of Insurance Should I Carry On My New Car?

Getting a new car can be a very exciting time in a person’s life. That new-car smell, all the newest technology, bells, and whistles. Looking out into the driveway to see it sitting there, new paint glimmering in the sun. You love your new car, and like a responsible driver, you purchased both comprehensive and collision coverage on your new vehicle. But is that enough to ensure that your new car is protected against the potential perils of the road, especially in busy cities such as Los Angeles?

In this article, we discuss new car replacement coverage, repair provision coverage, and Guaranteed Asset Protection (GAP) coverage.

Most insurance companies define a “new” car as a vehicle that is typically no older than 2 or 3 model years. Also, insurance companies typically require you be the original owner of the vehicle. The good news is, if you meet these requirements, or whatever criteria your insurance company requires, you can purchase “new car insurance” for your new vehicle.

Common insurance coverage such as comprehensive and collision coverage can help cover the cost of repairs if your car is damaged, but only up to your policy limits, and minus a sometimes costly deductible. The problem when standard comprehensive and collision coverage are not enough typically occurs in the case of a total loss involving a “new” vehicle. In this case, your insurance company will most likely only pay for the actual “cash value” of the vehicle.  “Cash Value” is the price that similar vehicles are selling for in the open market.  This is a problem for new car owners. The Insurance Information Institute states that new cars can depreciate as much as 20% during the first year. That means that if you bought your car for $30,000 and it is totaled in an accident in the first year of owning it, you will only be paid out $24,000 minus your deductible, for a total financial loss of over $6,000!

So how do you prevent this in the event of a total-loss collision? There are three (3) types of insurance that can protect you from this sort of financial injury:

(1) New Car Replacement Coverage

This coverage may help pay to replace a new car in the event that it is totaled. With this type of coverage, your policy may replace the totaled vehicle with a new one of the same make, model, and equipment.

(2) Repair Provision Coverage

Some policies also cover the cost of repairs in the event there is only a partial loss to your new vehicle, regardless of its actual cash value. Repair provision coverage can help pay for repairs to a partially-damaged vehicle based on the cost of replacing the parts. They do not deduct the depreciation in the new car’s value. Also, remember that coverage limits still apply, so make sure that you have an appropriate policy limits for your vehicle!

(3) Guaranteed Asset Protection (“GAP” Insurance)

Every driver that has financed a vehicle, new or pre-owned, should carry GAP insurance coverage. In the event that your car is totaled, the actual cash value that your insurance company pays you for the vehicle, after your deductible, is often substantially less than the amount still owed to the finance company (this is called being “upside-down” in a car loan). Remember, you are still on the hook for the payoff of the loan. GAP insurance can help cover the difference between the amount owed and the actual cash value of the vehicle, to ensure that you do not continue to have to make payments on a vehicle that you don’t even get to drive. GAP insurance is typically very affordable, especially considering the costs of not having such coverage.

So if you own a new car, or even a pre-owned vehicle, make sure that you have the appropriate coverage and policy limits for the vehicle. Although it may seem costly to buy these types of coverage in addition to other insurance, in the event that your car is totaled, it will save you a lot of money in the end.

For over 30 years, the Law Offices of Vann H. Slatter have been negotiating with insurance companies to get their clients the compensation they deserve. If you or someone you know has been injured as the result of another’s actions, please call us today for your free consultation at (310) 444-3010 or toll-free at  (888) 293-0404.

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