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. “
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