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How to insure your brand-new car

Posted : 04/30/2015

In virtually every state, you are required by law to carry auto insurance that meets minimum state liability requirements if you have a car on the road.

But when you buy a new car, you are likely to need more than that. A lender will require that you have comprehensive and collision, the coverage that protects the vehicle itself -- after all, it is the owner until you make the last payment -- against accidents, theft and other perils. And it might be smart to think about gap insurance if you have not made a substantial down payment, so that you don't owe more than the car is worth if it gets totaled.

Here's what to think about:

Is your new car already insured?

If you are already insured, your current car insurance company typically will cover you for a short time (14 to 30 days) until you can call with the details on the new car. In this case, you'll need to transfer insurance to your new car.

You'll usually have the same coverage on the new car that you did on the old.

If you had only liability coverage on the trade-in, you'll have only liability coverage on the new ride. That means if your old car was paid off and your new one isn't, you'll need to arrange for the collision and comprehensive insurance that lenders require before you leave the dealership.

Buying insurance while at the dealership

If you don't already have a car insurance policy in force, you will need to arrange for coverage before you leave the dealership with your new car.

We strongly suggest you call more than one agent or compare car insurance rates online. If you are currently not insured, you'll probably find that some companies are reluctant to cover you, and the quotes you get from the companies that will cover you can differ by hundreds, if not thousands, of dollars a year.

You will need to put a down payment on your new insurance coverage.

Even if you are insured, a new car is a great time to revisit what your current coverage amounts or compare quotes again. You don't want all the savings you just negotiated in the finance office to go up in smoke when you buy insurance.


What coverage should I buy?

If financing the vehicle, the lender will require that you have full coverage -- that is, comprehensive and collision coverages that protect the vehicle itself against accidents, theft and vandalism. Your insurance company will need to submit proof of coverage to the lender, usually within a few weeks of the purchase. If they don't get that evidence, they may buy very expensive coverage of their own and bill you for it.

You should also be certain that you have sufficient liability coverage to protect your assets from personal injury or property damage claims that may arise from an auto accident. If you own a house or have any savings, it's unlikely that minimum liability coverage will be enough. Use our auto insurance coverage calculator to get an idea about what level of liability coverage to buy.

And if you didn't put at least 20 percent on the car, or are financing for more than 60 months, consider gap insurance.

If leasing the vehicle, be sure to check your lease contract for any minimum coverage limits. Most leases require that you carry a minimum liability coverage limit or else you'll be in violation of the lease, but many require higher liability limits that state minimums. Leasing companies may limit how high you can raise your deductible as well.

If buying the car outright, you can go as low as state minimum requirements, and you do not need to buy physical damage coverage such as collision if you decide it's not worth the cost.

Auto insurance policies: What's covered?

A personal auto policy is a contract between you and your insurer. Essentially, your insurer promises to provide coverage up to a specified limit in return for your payment of a premium. Typically you have the option of four types of insurance coverage:

Liability coverage : Liability coverage insures you against injuries you cause to other people (bodily injury coverage) and other property (property damage coverage) in an auto accident, up to a specified limit. Since liability claims for pain and suffering can be very costly, this is one area in which you do not want to be underinsured.

Medical payments coverage : Medical payments coverage pays medical expenses up to a specified limit resulting from an auto accident, without regard to fault. This coverage is required in some states and optional in others.

Uninsured/underinsured motorist coverage: Uninsured motorist coverage insures you against losses caused by a driver who is uninsured or has less than adequate insurance to cover the loss.

Coverage for damage to your auto: This coverage consists of two parts, collision and comprehensive. Collision insures the value of your car in the event of an accident, while comprehensive protects you against other types of damage to your car (such as theft, fire and vandalism). These coverages include a deductible, which is the amount of a claim you agree to pay per incident.

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