What is new-for-old car insurance and how does it work?

After you purchase a car, taking out comprehensive car insurance provides some reassurance that the cost of repairs will be largely taken care of if you have an accident. But, what happens if your car is stolen or written off within just a few years of owning it? 

The good news is that with the right policy, many insurers in Australia will replace the car with a new one of the same model and make. This is known commonly as a new-for-old car replacement.

What is new car replacement insurance?

If your car is stolen or written off within the first couple of years of purchase, most comprehensive policies will replace the vehicle with a vehicle of the same type. Most insurers provide this option as part of your car insurance policy, and in most cases, it has little to no impact on the premium rate. 

While the car replacement offer is only available for the first few years after you purchase the car, some insurers also offer lifetime new-for-old replacement car insurance, which is sold as an extra to a comprehensive policy.

When are you eligible for new car replacement?

Before you can claim for a new car replacement, there are certain criteria you need to meet. One of the biggest necessities is that you must be the first registered owner of the car. Moreover, if you have purchased the car with the aid of a loan, you must gain permission from the credit provider to replace it. 

In what situation would you receive a replacement vehicle?

In most cases, a new car replacement is offered by insurers if your vehicle is declared as a total loss. This is usually defined based on the following factors. 

• Your vehicle was stolen and has not been found within a specific time frame, which is typically 14 days. 
• Your car has been damaged beyond repair.
• Your car can be repaired, but the cost of the repair exceeds the sum insured.

What other factors should be considered?

• If you have extended your insurance on your original vehicle, it most likely won’t be applicable to your new car.
• You might have to bear the cost of basic excess, however, some insurers may opt to waive this cost if you were in an accident that was not your fault.
• Some insurers may not replace your car after two years of purchasing it, or if it has crossed the 40,000 km limit.

What kind of car will you receive?

In most cases, a car insurance provider will replace your car with another vehicle of the same make, model and series. Additionally, if you had installed accessories in your old car, some insurers will also replace those in the new car.

Lastly, your insurer will most likely also cover the on-road costs, which includes the compulsory third party (CTP) insurance, stamp duty and 12 months’ registration.

What happens if the same car model is not available?

Most insurers will attempt to replace your car with the same make and model as the original car. However, the same model may not always be available. This can often be the case when you’ve selected a policy that offers lifetime new-for-old car replacement options. 

In such cases, the insurer will most likely try to find another vehicle that is similar in specifications, features and space as the original car. If you’re happy with the new model, you can choose to go ahead with the replacement, or you can typically elect to receive a payout. 

If you choose a payout, the amount you receive will be equivalent to the covered sum, minus any applicable deductions. For example, the excess payment will be deducted from the total value of your car. Moreover, in the case that the insurer is not going to transfer the policy to the new vehicle, the cost of any unpaid premiums will be deducted from the payout cost.

What happens after the car is replaced?

Once the car is replaced, the next steps often vary from one insurer to the next. In most cases, your insurer will transfer your policy to the new vehicle. However, some insurers will require you to obtain a new policy for the replacement car. The specifications of this are most likely listed in the product disclosure statement (PDS) of your policy, and it is recommended to carefully go over it to know exactly what rules apply.

To ensure you find a car insurance policy that meets your requirements, you could begin your search by comparing a range of new car replacement insurance providers in Australia.

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