Buying Car Insurance for Your New Car

Buying Car Insurance for Your New Car

Find Cheap Auto Insurance Quotes in Your Area

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Car insurance is required to drive your car in nearly every state, and new autos are no exception. You'll need to get insurance that meets your state's minimum requirements before you can drive off the lot, so planning ahead can save you a lot of time when you're buying your car. What's more, the cost of car insurance makes up a significant portion of what you'll spend to own your new car overall, so it's a good idea to know what your monthly premium will be before you buy.

The cost of insurance for a new car is higher than for an older model, but not significantly so; the difference in price is usually due to increased comprehensive and collision coverages. To offset the increased expense and get the cheapest insurance for your new car, apply for as many discounts as you can, such as those for advanced safety features not available on older models.

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 have an idea of the car you want to buy before you get to the dealership, start by collecting several sample quotes to see where you can get the best rates, either online or over the phone. Then, once you decide on and purchase a car, contact your insurance provider to give it your new car's VIN and pay for the policy.

Even if you don't know what car you want to buy before you arrive, or have a sudden change of heart about which vehicle you want to get, you should still spend a few minutes at the dealership collecting quotes, either online or over the phone. It's possible to get a quote and purchase an auto insurance policy completely from a smartphone, so there's no reason not to spend a few minutes looking for your best rate.

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 car without already having purchased 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 time period can vary a lot between insurers. For example, Progressive gives its 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 how long of a grace period you have until you must add it to your policy, as well as 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, as 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 are changing insurers, you must purchase a new policy before you'll be able to 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 "7-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 the net money you save by searching thoroughly for the best priced new auto insurance you can find.

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 are continually adding 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 there to be 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. Whether you receive cheaper quotes for your new car's insurance than you would for an older model depends on which 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 their best price, as we found a much bigger price range from insurer to insurer than we did among different ages of car. 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. If your car is equipped with features like 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?

There are two insurance requirements you'll likely need to meet when buying a 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, as well.

The second requirement you may face is imposed by the lease or loan company that finances your new car purchase. According to the terms of your lease, you'll typically be required to purchase collision and comprehensive coverage, which pay for the cost to repair damage to your car. This helps protect the loan company'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 what optional coverages you may want 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

Two coverages you might consider when buying a new car are new car replacement insurance and gap insurance—both are optional and aren't required when you get a new car. If your car is totaled in an accident, both coverages will help you recoup financial losses between what you paid for your car and its actual cash value (ACV), which is paid out under comprehensive or collision coverage. You should consider these coverages if you are concerned about recouping your losses if your new car is totaled.

Gap insurance is the more commonly available of the two and is offered to people who have financed their new cars with loans or leases. 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 your lease. For example, if your car's ACV is $20,000 and you owe $22,000 when it's totaled, you would receive $20,000 from your collision or comprehensive coverage. Gap coverage would pay the remaining $2,000 you owe, so that you're back at square one—you don't own a car, but you also don't owe the financing company any money. Gap insurance is sometimes included in the terms of new car leases and loans, as well, in which case you wouldn't need to purchase it twice from your loan company and your 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. If you purchased a new car for $25,000 and it's worth $20,000 when it's totaled in an accident, you'll get $5,000, enough money—when combined with the $20,000 paid out by your comprehensive or collision coverage—for you to buy a brand-new vehicle.

Mark is a Senior Research Analyst for ValuePenguin focusing on the insurance industry, primarily auto insurance. He previously worked in financial risk management at State Street Corporation.

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