Buying Car Insurance for Your New Car

Buying Car Insurance for Your New Car

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Auto insurance is required in nearly every state, and new cars are no exception.

Before you drive off the dealership's lot, you'll need to show you have insurance coverage that meets your state's minimum requirements.

The cost of insurance for a new car is a bit higher than for an older model, usually due to increased comprehensive and collision coverages. Planning ahead and looking for discounts can save you a lot of time and help you find an affordable policy.

How to get auto insurance for a new car

Purchasing automobile insurance is a necessary step when buying a car, but you need to know exactly which car you're buying to activate the policy. If you know the make and model of the car you want to buy, start by collecting several sample quotes online. Once you purchase the car, contact your insurance company to provide the VIN and pay for the policy.

Even if you haven't chosen a car yet or you change your mind at the dealership, you should still spend a few minutes collecting at least three insurance quotes.

You can get a quote and purchase an auto insurance policy all from a smartphone, so there's no reason to skip this step. Typically, insurance companies will send you proof of insurance immediately after you buy it. So in most cases you can sign the paperwork at the car dealership, purchase your insurance online or over the phone, and drive home in your new car. But every insurance company works differently, so if you can, check with the insurer before you head to the dealership to buy the car.

Insurance grace period when buying a new car

If you already have a vehicle, you may be able to purchase a new car without purchasing a new auto insurance policy. Most insurance companies offer a grace period for new vehicles, where any new cars you buy will be covered under your existing policy for a short time. This period varies with each insurer. For example, Progressive gives drivers 30 days to add a new car to their policies, while other insurers may give you less than a week.

Before you buy your new car, make sure you know the length of your grace period and what you need to bring to the dealer to prove you're eligible for that temporary coverage. Once you've bought your car, don't forget to add your new car to your policy before your grace period is up. Even a short lapse in insurance coverage can make a lasting impact on your insurance rates.

If you don't already have car insurance or you're changing insurers, you must purchase a new policy before you drive your car home — you can't "back-date" insurance to apply retroactively.

Alternatively, in a few states you can buy a short-term insurance policy, also referred to as "seven-day" or "30-day" policies. Short-term insurance is intended to give you time to shop around for the lowest insurance rate. Unfortunately, short-term insurance is often significantly more expensive than a normal policy, reducing your net savings.

How much does new car insurance cost?

Newer cars are generally more expensive to insure than old ones, particularly if you carry comprehensive and collision insurance, as they are worth more and are therefore more expensive to replace. However, car manufacturers continually add new safety features — such as lane assist, backup cameras and blind-spot warning — which can make driving a new car safer and thus cheaper to insure.

In our research, we found a slight difference in monthly premiums between brand-new and 4-year-old cars of the same make and model. The 4-year-old model was about 5% cheaper to insure overall. Your own insurance quote will depend on the car you choose, the vehicle's features and the coverages you select.

The best way for drivers to get the best deals on car insurance for a new car is to shop around for the cheapest rates. We found a much bigger price range between insurers than we did among different car ages. So when you're shopping for cars, collect a few quotes online or call your insurance agent and have them pull quotes for you as part of your research. In particular, drivers looking to save money on insurance for a new automobile should look for discounts for their car's safety add-ons.

For example, if your car is equipped with features such as advanced collision detection or anti-lock brakes, some insurers may give you a significant discount.

What insurance do you need when buying a new car?

You'll likely need to fulfill two insurance requirements for your new car. The first is your state's mandatory insurance minimum, and nearly every state has one.

State minimums most commonly include liability insurance for bodily injury and property damage, but many states also require you to have uninsured motorist and personal injury protection, too.

The second requirement you may face is imposed by the lender that finances your new car. According to the terms of your lease, you might be required to purchase collision and comprehensive coverage, which both pay to repair damage to your car. This helps protect the lender's investment in your car. You may also be required to carry higher liability insurance limits than your state's minimums.

Beyond the minimum requirements for car insurance, you should also consider whether you need optional coverages to protect your new car, especially if you are transferring your insurance coverage from an older vehicle. A new car is a significant expense, so increasing your comprehensive and collision insurance limits, for example, will help protect your investment.

New-car replacement and gap insurance

New-car replacement insurance and gap insurance — both optional — can help you recoup financial losses if your car is totaled in an accident.

Gap insurance is typically available to people with a loan or lease. If your car is totaled in an accident, gap coverage will pay the difference between your car's actual cash value and how much you owe on the loan or lease.

For example, let's say your car is totaled in a collision, and the car's actual cash value is $20,000 and you owe $22,000. Your insurance policy's collision coverage would reimburse you $20,000. Gap coverage would pay the remaining $2,000 you owe, so you're back at square one: You don't own a car, but you also don't owe your lender any money.

Gap insurance is sometimes included in the terms of new car leases and loans. In these cases, you wouldn't need to purchase coverage from an insurer.

New-car replacement coverage goes a step beyond gap coverage in terms of payout amount. It's not offered by as many insurance companies, but it's available even if you paid cash for your car. If your car is totaled in an accident, new-car replacement coverage will pay for the cost of an entirely new car that's equivalent to the one you had.

Let's say you purchased a new car for $25,000, and it's worth $20,000 when totaled in a collision. Your collision coverage would give you $20,000 and the new-car replacement coverage will give you $5,000 — enough for you to buy a brand-new vehicle.

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