Few events in life are as exciting as purchasing and driving a brand-new vehicle. But before signing on the dotted line and taking the keys from the dealer, it’s important to make sure that you have new car insurance.
Before you drive away in your next car, read on for everything you need to know about new car insurance.
- Car insurance on a new car depends on several factors, such as the model, age, mileage, value, safety features and driving history.
- At a minimum, you’ll be required to purchase the liability insurance coverage that’s required in your state.
- Many dealerships and financing companies require the new vehicle to be added to your policy before the transaction is complete.
- Minimum insurance requirements for new cars
- What’s the insurance grace period on a new car?
- Am I covered by dealer insurance?
- Car insurance for a new car: How much car insurance do I need?
- Can you add a new car to an existing car insurance policy?
- How much is car insurance for a new car?
- Should I get insurance for a new car before I buy it?
- How to get insurance on a new car in 5 steps
Minimum insurance requirements for new cars
First, it’s essential to know that every state has minimum requirements for auto insurance coverage — liability insurance — which is usually expressed in a series of three numbers, such as 25/50/25.
“The first number is the maximum amount paid per person for injury claims, which can include not only medical bills but also lost wages, other expenses, and general damages like pain and suffering. The number ’25’ means $25,000 of bodily injury liability coverage per person,” says Bryon Bromley, a Beaverton, Oregon-based auto insurance industry expert and blogger for Adjustyourdrive.com who previously worked as a liability claims adjuster.
The second number is the maximum amount paid out for injury claims per accident. In some accidents, this amount may need to be spread across multiple people, thus reducing the maximum amount any one person could receive. The number “50” refers to $50,000 of bodily injury liability coverage per accident.
“The third number is the maximum amount payable for all property damage, including vehicles, buildings, landscaping, personal items, and any other related damages,” Bromley says. “The number ’25’ means $25,000 of property damage liability per accident.”
Besides keeping an eye on the amount of new car insurance you’ll need, it’s also important to know when you are required to have insurance in place.
Mark FriedlanderDirector of corporate communications for the Insurance Information Institute
“Most insurance professionals recommend you obtain full coverage for adequate financial protection from significant losses caused by an at-fault accident. Purchasing state minimums may leave you and your family financially vulnerable in the event of a loss.”
What is state minimum liability car insurance requirements?
What’s the insurance grace period on a new car?
Technically, for a short time after buying a new vehicle, that car should be automatically covered by your existing auto insurance carrier, even if you haven’t yet contacted the insurer to add a policy for this car.
“Most auto insurance companies provide automatic coverage for new vehicle purchases equal to the broadest coverage you have on your current vehicle or other cars listed on your auto policy,” says Friedlander.
If you already have an auto insurance policy in effect, and you purchase a new vehicle, the insurance grace period on a new car will typically run from seven to 30 days, depending upon your insurer, Friedlander adds.
However, it’s best to add and verify coverage before first driving your new car for several reasons.
“Typically, you must have all cars in your household insured with the same company. The new car purchase also has to be a vehicle your insurer will actually insure. In some cases, your insurer may not cover certain specialty vehicles, such as heavy commercial trucks, RVs, motorcycles, and exotic cars,” Bromley says.
“Secondly, when purchasing a new car, you may need to add new types of coverage, adjust your deductibles, or raise your coverage amounts. You don’t want to end up not fully covered when the unexpected happens,” Bromley says. “Third, many dealerships and financing companies require that the new vehicle be added to your policy before the transaction is complete.”
Am I covered by dealer insurance?
A car dealer has automobile insurance in place on its vehicles so that you and others can test drive them. But it won’t cover you once you purchase the vehicle. You’ll need to buy insurance for a new car.
Car insurance for a new car: How much car insurance do I need?
As mentioned earlier, just because your state sets a minimum amount for automobile insurance coverage doesn’t mean it’s enough. Consider that liability insurance only pays for damages to the other car.
CarInsurance.com editors recommend a minimum of 100/300/100 insurance, which is $100K in bodily injury liability, $300 bodily injury liability per accident and $100K in property damage liability per accident.
If you financed the vehicle, your lender will require full coverage insurance, which comprises collision and comprehensive coverage at a minimum. Drivers also should consider gap insurance, which pays the difference between the amount you owe and how much the car is worth.
Read how much car insurance do I need?
What type of new car insurance to consider?
Many insurance experts advise getting full coverage or close to it on a new vehicle.
“A full-coverage policy typically includes liability limits well above state minimums as well as optional comprehensive and collision coverage — which around 80% of American drivers carry,” Friedlander says. “Some full-coverage policies also include optional uninsured/underinsured coverage.”
What is full coverage car insurance and what does it cover?
In addition to liability coverage, consider adding the following to your new car insurance policy:
Higher liability limits
Say the minimum liability coverage for your state to drive legally is 25/50/25. You may want to bump it up to 100/300/100 or higher. If you get into an accident with damages and injuries higher than the amount of your coverage, the other party could sue you for the extra costs. If you own a home or other assets, they could be at risk.
The Insurance Information Institute recommends getting at least $100,000 of bodily injury liability per person, $300,000 of bodily injury liability coverage per accident, and $50,000 of property damage liability per accident.
Collision coverage pays for damage to your car resulting from a collision with an object — such as a mailbox, guardrail, or telephone pole — or because your vehicle has flipped over.
Collision coverage reimburses you for the costs of repairing your car, minus the deductible, Friedlander says.
Comprehensive coverage protects against damage to your vehicle caused by losses other than collisions, including fire, theft, vandalism, falling trees, floods, and other severe weather events. It also covers cracked windshields and animal strikes.
Uninsured motorist coverage
Uninsured motorist coverage is also known as uninsured motorist bodily injury (UMBI) insurance, this coverage will safeguard you and your passengers from medical bills if you are involved in an accident with an uninsured motorist who is at fault.
Additionally, this coverage will reimburse you and your passengers for lost wages.
Uninsured motorist property damage (UMPD)
“Uninsured motorist property damage coverage pays for damages to your vehicle caused by an uninsured driver and also covers damage to other personal property, such as your house or your fence, although this coverage is not available in all states,” Friedlander says.
Optional gap insurance covers the difference between the actual value of your car in the amount financed in the event of a total loss.
“Gap coverage is helpful if you are financing a new car, especially with a small down payment,” Bromley says. Your car may depreciate in value faster than you pay off the loan, especially at the beginning of the loan period. Collision and comprehensive coverage only pay the current value of your car. Without gap coverage, you may be left paying the rest of a loan on a vehicle you no longer own.”
Rental coverage on a vehicle is optional, and many people don’t think to add it to their policy.
“But if you were involved in an accident tomorrow, would you need a rental car to get to work, for example? If so, you should consider carrying rental coverage,” Bromley says.
Can you add a new car to an existing car insurance policy?
If you’re planning on trading in your existing car for a new one, some of the legwork of getting insurance on a new car is done already. Even if you’re planning on keeping your existing car and adding a new one, changing car insurance should be simple. Best yet — you’ll probably be eligible for a multi-car discount.
All that’s required to add another vehicle to your insurance or switch the old car with the new one is to contact your insurance carrier.
You’ll need the vehicle identification number and a few details such as the make, model, year and mileage. If you don’t have the VIN yet, it’s all right. You can always add it once you have the keys to the new vehicle.
Just remember that the more details you can give your insurer, the more accurate the quote on the price difference between the old and new car insurance will be.
Be sure to comparison shop by getting quotes from a few insurers — you may decide to switch car insurance carriers for a better deal.
How do you insure multiple vehicles?
How much is car insurance for a new car?
The price tag of getting insurance on a new car will depend on several factors, such as the model, age, mileage, value, safety features, and driving history.
The average cost of a car insurance policy in 2021 was $1,839.
CarInsurance.com commissioned Quadrant Information Services to calculate average auto insurance rates for 2020 models. Averages were calculated using data from six large carriers, in 10 ZIP codes per state.
Averages are based on full coverage policy limits of 100/300/50 ($100,000 for injury liability for one person, $300,000 for all injuries and $50,000 for property damage in an accident) and a $500 deductible on collision and comprehensive coverage. This hypothetical driver has a clean record and good credit. The rate includes uninsured motorist coverage.
Average rates are for comparative purposes only. Your own rate will depend on personal factors.
Should I get insurance for a new car before I buy it?
The new vehicle you intend to buy should be properly insured from the moment you first drive it.
As stated earlier, most insurers offer a grace period whereby they will automatically cover a new vehicle if you already have a policy in place with another car. If you don’t already have a policy or insurer, you’ll want to shop around for quotes.
Keep in mind that you shouldn’t necessarily purchase new car insurance before you buy the vehicle, just in case the deal falls through.
However, it’s wise to know how much coverage this car will cost and what type of coverage you’ll want to buy. If you’re confident that the transaction will go through and you’ll keep the vehicle, you can set the policy to become effective the day you sign the paperwork.
If you’d like to wait until you sign on the dotted line, making a policy effective doesn’t take long. You can have the policy ready to go in advance with your insurance carrier.
Once you sign the paperwork, call your insurer to purchase the policy. By the time you hang up, your insurer should be able to email or fax the dealership proof of coverage in just a few minutes, allowing you to drive away in your new car with peace of mind.
How to get insurance on a new car in 5 steps
If you don’t have an existing automobile insurance policy in place, you’ll need to start from scratch.
The good news is that this gives you the chance to shop around for the best insurance prices. Want tips for buying insurance for a new car?
Follow these five steps to get car insurance for a new car.
1. Gather information about the new vehicle
To get an accurate price quote and buy new car insurance, you’ll need some details about the car:
- The vehicle identification number (VIN)
- Make and model
- Trim package (leather seats, navigation, etc.)
You may not have all this information, but the more details you can provide, the more accurate your quote will be. If you don’t have access to the VIN, you can always provide it after you buy the car.
“You’ll also need to provide the ages and driver’s license numbers for all family members who will be listed on the policy,” Friedlander says.
2. Compare quotes on new car insurance before you buy the vehicle
Once you have the information you need, you can get a few quotes for the vehicle to find the best deal.
Getting insurance quotes before you buy is also smart so that you know how much your insurance will cost. You may decide the car you’re interested in is too expensive to insure. It’s better to know this before you buy the vehicle.
“The Insurance Information Institute recommends that you get a minimum of three quotes from a mix of national and regional insurers when shopping for auto insurance to compare costs and coverage,” Friedlander says.
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3. Set an effective date on your policy of choice
Once you’ve decided on your coverage and are ready to buy a policy, request that the policy go into effect on the same day you are going to buy the car.
If you’d like to wait until after you sign the transaction paperwork, ask the insurer to put the policy on hold until you call them, at which time you can complete the insurance purchase over the phone.
“If you are adding a new car to your existing policy, you can typically do so immediately,” says Bromley.
4. Transfer the new car’s title
Curious about how to transfer the new car’s title? The dealership and your lender will typically do the paperwork for the title when you buy a new car. The lender keeps the title until you pay off your loan in full. Once you own the car outright, the lender will mail you the title.
“Each state will have a specific process for transferring the title, and this will include your lienholder when financing a vehicle,” Bromley says. “Your dealership should be able to guide you through the title and registration process.”
When you purchase a new car from a private seller, he or she will sign the title over to you, and you both will sign the appropriate sections on the back of the title.
You’ll need to complete the transfer at the Department of Motor Vehicles (DMV). Each state has its own requirements, but typically the documents and information you need include:
- A bill of sale showing the purchase price
- Proof the title has been signed over to you
- The VIN (which should be on the bill of sale and title)
- The current odometer reading
You may have to fill out a form to document the title transfer so the DMV can reissue the title in your name.
What is the difference between title and registration?
5. Register the new car
The last step is to register the new car and let your insurance company know.
“Registering the vehicle is typically handled by the dealership where you purchased it. In a private sale, you’ll need to process the new vehicle registration with your state’s DMV,” says Friedlander.
When you register the car, in addition to the information you need to do a title transfer, you’ll likely need the following:
- Proof of liability car insurance
- Proof that you’ve paid sales tax on the car purchase
- Certificates showing the car has passed safety and emissions inspections
“Broadest coverage” means that if you have two vehicles on your policy, with car number one having only liability coverage and car number two having liability coverage plus collision/comprehensive coverage, “your newly acquired vehicle would have the same coverage as car No. 2.”