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How to insure your brand-new car

By Insurance.com Posted : 11/06/2014

New car sales lotIn 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 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.

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. If you are currently insured, you current insurance company typically will cover  you for a short time until you call your carrier with details on the new car.

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. (You can get an idea about what level of liability coverage to buy with Insurance.com's "What Drivers Like  You Buy" tool.)

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. (See "When to drop collision -- and risk it all.")

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 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.

Most policies contain additional sections that describe your responsibilities after an accident or loss, various provisions that limit and qualify your coverage (e.g., what's not covered), and additional types of optional coverage, such as gap insurance, towing and labor coverage, loss of income protection, and rental reimbursement insurance.

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