Understanding Aftermarket Parts and Car Insurance

What are Aftermarket Parts?

Aftermarket parts are replacement parts that are not made by the original equipment manufacturer. Aftermarket parts are used to replace damaged parts in automobiles and other equipment, but their use may alter the coverage of an insured item. They are similar to generic pharmaceuticals in that they are cheaper than brand name medication, but are likely to have similar effectiveness.

The Certified Automobile Parts Association (CAPA) issues guidelines for aftermarket parts. This association is the gold standard for aftermarket parts when it comes to safety due to its rigorous high standards and quality testing.  

How Aftermarket Parts Work

Repairing a damaged vehicle can be expensive, and motorists may request aftermarket parts to be used whenever possible because they tend to be less expensive than parts made by an original equipment manufacturer (OEM).

Key Takeaways

• Aftermarket parts are also called non-OEM parts, generic parts, or competitive replacement parts. 
• Some consumers worry about the quality or safety of aftermarket parts but these fears are unfounded, according to auto experts.
• Using aftermarket parts can be more cost-effective than using OEM parts. 
• If you are in a car accident, an insurance company may suggest that the auto mechanic use aftermarket parts rather than OEM parts to repair the vehicle. 

Depending on the language of the auto policy, allowing the repair shop to use aftermarket parts instead of OEM parts may allow the insurer to alter the policy's coverage going forward. 

The National Association of Mutual Insurance Companies estimates that aftermarket parts cost as much as 50 percent below their OEM counterparts, saving car owners more than $2.2 billion annually on repairs. Aftermarket parts represent less costs for insurers and can potentially drive down overall auto insurance premiums. In other words, insurance companies like aftermarket parts as much as the budget-conscious consumer does because they don’t necessarily have to insure them.

Upgrades may include custom paint jobs, different wheel rims, stereo systems or detailing.

When purchasing a new insurance policy or reviewing an existing one, aftermarket coverage is usually found in the custom parts and equipment provision. This part of the policy provides coverage for damage to aftermarket parts, though the coverage may have relatively low limits. In some cases, the insured may wish to purchase additional coverage on aftermarket parts, especially if upgrades were made to the vehicle that was not installed by the vehicle manufacturer.

OEM vs. Aftermarket Parts

The issue isn't whether high-quality aftermarket parts exist or are never the best option. Sometimes, they may actually be the only option. If a car is older, aftermarket parts may be the only choice for some repairs. While the quality of some aftermarket parts may be questionable, most parts are equal to, if not better than, OEM parts and are usually more readily available than OEM parts.

An argument often made against the use of aftermarket parts in repairs is that they can void warranties. However, the Magnuson-Moss Act, which governs warranty language, prohibits "tie-in sales," meaning using language to explicitly prescribe the use of a company's product. For example, a manufacturer cannot force a consumer to use their product by using the threat of a voided warranty. It also applies only to consumer products that are used for personal purposes or by families and households.

Special Considerations

The amount of money that an insured driver may expect to receive for repairs to aftermarket parts and other upgrades depends on the insurer's replacement schedule. In many situations, the insurer will depreciate the original value of the aftermarket parts according to a formula, and will only cover the value that remains.

The formula used by the insurer calculates the actual cash value of the parts. If a claims adjuster determines that the vehicle is totaled, then the insured will only pay for the value of the insured loss. This typically does not include the loss of the upgrades.

Depending on the state, insurance regulations pertaining to the use of aftermarket parts differ. As of 2017, 31 states required first-party insurers to disclose repair estimates with the use of non-OEM parts. Twenty states required the manufacturer of aftermarket parts to be identified while 13 states required aftermarket parts used in a repair to be of "like kind and quality" as OEM parts. Six states also required consent of the insured before use of aftermarket parts in repairs.