Buying a new car is both an exciting and nerve-wracking time. The most important way to protect yourself and your new vehicle is to buy a solid car insurance policy. In fact, per your state’s requirements you must have some sort of liability coverage before you drive off the lot. Additionally, you might want to add certain types of auto insurance to protect you in case your car becomes totaled and you must pay off the loan or replace your vehicle.
New Car Insurance If You Already Have an Existing Policy
If you already have car insurance for another vehicle, you can add your new car onto that existing policy. Most insurance policies will cover your new vehicle within the coverage of your existing policy for about 4 – 14 days after purchase. However, you’ll need to update the policy to meet your new vehicle’s coverage needs. For example, your auto lender will probably require “full coverage” (i.e. collision and comprehensive insurance) for the new car – at least until you pay off the loan. Additionally, you might want to add certain types of auto insurance to protect you in case your car becomes totaled and you must pay off the loan or replace your vehicle.
New Car Insurance If You Don’t Currently Have Any Insurance
If you do not have car insurance, you should contact an insurance provider before you go car shopping. To buy new car insurance, you will need to know the information of the vehicle you are purchasing (model/make/year/VIN number). Therefore, you should first shop around for car insurance quotes before car shopping. Once you have chosen a provider, make sure that they are able to sell you insurance when you need it. Most people shop for cars on the weekend so you will either need to purchase insurance from a provider like GEICO who sells insurance directly to consumers online or a company who has a weekend hotline that allows you to contact an agent for purchase.
Let’s get familiar with the kind of coverage your new ride needs before you drive off the lot.
Nearly every state requires liability insurance; without it, you can’t register your vehicle or legally operate it on public roadways. You will not be allowed to drive your new car off the dealership lot if you do not have liability insurance.
Because of this, you probably already have a liability insurance policy if you own another vehicle.
Liability insurance consists of coverage for:
- Bodily Injury: Covers harm to a person, per person and per accident.
- Property Damage: Covers damages to vehicles and other property.
Additionally, some states require:
- Personal Injury Protection: Sometimes called “no-fault insurance”, personal injury protection (PIP) covers injuries you – and not the other driver – sustain in an accident. PIP might span to cover medical expenses, disability and loss of income, in-home services and rehabilitation, and even funeral and burial or cremation expenses.
- Uninsured/Underinsured Motorist Coverage: Covers you and your passengers if you’re in an accident with a driver who doesn’t have insurance or doesn’t have enough insurance.
The minimum amount of liability coverage you need when you purchase a new car insurance policy depends on your state. We’ve outlined the minimum insurance requirements for you, but rest assured your insurance company will make sure you meet your state’s requirements when you apply for coverage.
Collision & Comprehensive Insurance
Perhaps the most common type of new car insurance is collision and comprehensive insurance. States do not require collision and comprehensive insurance, but most banks and other financial lenders do require this coverage. Because most people use some sort of auto loan to purchase a vehicle, they’ll be required to add collision and comprehensive coverage when they purchase a new car insurance policy.
- Collision Insurance: Covers damages to your vehicle if you crash into another car or object, or if your vehicle rolls over.
- Generally, collision insurance also covers replacement cost if your vehicle becomes totaled; however, don’t confuse the replacement cost with what you actually owe on the car. When the amount you owe is higher than the car’s worth (i.e. the replacement cost), it’s time to consider gap insurance (see below).
- Comprehensive Insurance: Covers damages caused by something other than an accident including fire; vandalism; falling objects; hitting or getting hit by an animal; natural disasters; and theft.
Your bank or lender requires comprehensive and collision insurance because it financially protects them in the event your new car sustains damages. This coverage benefits you, too, because it helps pay repair costs.
Typically, car insurance companies sell collision and comprehensive coverage as a packaged deal.
The aptly named gap insurance (“guaranteed auto protection”) covers the gap between how much you still owe on the vehicle and how much the vehicle is actually worth (the actual cash value), minus your deductible.
Your vehicle starts depreciating the moment you drive it off the lot, meaning the car’s actual cash value becomes less than the amount you still owe on it. Therefore, it’s especially important to consider gap coverage when you buy new insurance for a car.
So, when would you actually need to use your gap insurance?
Well, if something happens to your new car that renders it “totaled” (or it is stolen and not recovered), you’re going to want some coverage, right? Right. The good news is collision and comprehensive insurance often steps in; the bad news is collision and comprehensive generally only pays the actual cash value. If you owe more than the car is worth, that payout will only cover a portion of your loss.
However, with gap insurance you’ll also get the difference between the actual cash value and how much you still owe.
A variety of factors can contribute to you owing more than your car is worth in quick time:
- Your down payment was less than 20%.
- You financed the vehicle for a lengthy period (think, 60 months).
- You rolled over negative equity from a previous car loan to your new car loan.
While gap insurance usually isn’t required, it’s definitely smart to protect yourself and tack the coverage onto your new car insurance policy.
New Car Replacement Insurance
What happens if your new car becomes totaled soon after you buy it? That’s where new car replacement insurance comes in.
New car replacement insurance pays the value of a brand-new car of the same make and model, minus your insurance deductible. This coverage is often confused with gap insurance. Gap insurance pays the difference between your car’s actual cash value and the amount you still owe on your auto loan, new car replacement insurance covers the cost of – you guessed it – a replacement car.
Not all insurance companies offer new car replacement insurance, and those that do usually put specific restrictions on it. For example, most companies that offer this coverage only do so:
- For cars of a certain age (for example, one year old or newer).
- Until a certain mileage (for example, 15,000 miles or fewer).
Once your vehicle hits the limits the policy sets, the coverage is void. At that point, make sure you review your policy and remove this coverage so you don’t continue paying extra for something you can’t use.
Purchasing Insurance for Your New Car
As you’ve seen, there are several aspects to consider when buying an insurance policy for your new car:
- Does the policy meet the state’s minimum liability requirements?
- Do you have enough coverage to take care of damages to your car after an accident, vandalism, or theft?
- Are you covered in case something happens to your car and you need to pay off the auto loan or even replace the vehicle?
Of course, you also need to consider cost. You want the best coverage for the most affordable premium, and getting those means shopping around. Insurance premiums vary by company, and depend on factors such as your age, gender, driving history, and credit score; where you live; the make, model, and year of your new car; and your primary vehicle uses. Be prepared to provide this information to numerous auto insurance providers to get the coverage you need at a price you can afford.