Some auto insurance companies offer nice features with their policy that could provide some financial protection to new car owners. A new car replacement guarantee is one of those. If your insurer offers it, it means the company is likely to replace your car if totaled during the first year. That sounds fair and like something all insurers may do. However, that is not the case. In fact, you may find yourself without any protection in some situations.
Consider the Value of Your New Car 
This type of auto insurance feature offers a nice benefit. Yet, you may not even realize there is a risk to you.
If you buy a new car and pay $30,000 for it, you likely obtained a loan to do so. But, as soon as you drive that new car off the lot, it is no longer worth $30,000. Rather, the rate of depreciation of value is significant for most vehicles. This means that by the end of your first year, the car’s value may be just $25,000.
Now, consider what happens if an accident occurs. You still have your loan. And, you have car insurance. The damage is significant. The mechanic cannot repair it to a safe condition. You file a claim with your auto insurance only to learn they cannot match the value of your car. Because of the depreciation, the insurer only pays what the car is worth right now. That could leave you on the hook for a significant amount of money on your loan. And, this can even mean getting a new loan is not possible.
A New Car Replacement Guarantee Fixes This
Some auto insurance providers offer this guarantee to you. If you are in an accident like this, and the insurer totals the car, they will pay you enough to get a new car. Most of these policies have limitations with them. For example, it may only be in place for the first 12 months. And, the mileage on the car cannot be more than a specific amount. Read through the details on the policy to really understand what your rights are.
If you do not have this option with your car insurance provider, consider requesting it. Or, you can purchase gap insurance. This form of car insurance is rather inexpensive. But, it helps cover the gap between the value of your car and what you owe on your loan.