Do insurance companies really replace new cars if they're totaled and under a year old?

My cousin said that Allstate will replace her car if it's totaled within the year. I don't believe her because that seems like a huge cost to an insurance company. Is she right?

“Your cousin is correct, but this only applies if she has new car replacement coverage with Allstate. New car replacement coverage pays for you to buy a new car if your vehicle is totaled within the first year or two of ownership.
The coverage normally applies to new cars that have logged less than a certain number of miles.
New cars depreciate up to 30% in the first year. And if your vehicle is totaled, your insurance company would pay out its actual cash value, which is the original price minus depreciation. This means if your vehicle is totaled within the first year, you could end up losing a lot of money on your new car.
It may seem like a large cost to insurance companies to replace new vehicles, but they’ve decided to accept the risk in exchange for being able to charge higher premiums. “
Emily Maracle
Answered on May 07, 2021
Emily Maracle is a car insurance specialist living in New York. Originally from the Pacific Northwest, she has a degree in English Literature and a background in customer service. She enjoys cooking, gardening, and living sustainably. In the future, she can't wait to upgrade to a hybrid or electric car.

Did this answer help you?

Ask us a question by email and we will respond within a few days.

Have a different question?

You can meet us at our office and discuss the details of your question.