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How Does New Car Insurance Work?

New Car Insurance

You’ve done all your research, watched all the videos on YouTube, and performed all the test drives, now it’s time to buy that new car. Fun! For many, there is just one more question to get answered, “how does new car insurance work?” You need coverage for your new wheels, right? For many, it’s super easy and your current auto insurance policy will cover your new car the second you drive it off the lot—often at the same car insurance coverage as your old car.

However, if you don’t have a policy, are listed on another person’s policy, or don’t have the coverage required by the lender, you could get stuck at the dealership. Or worse, taking the car off the lot without coverage.

How does my policy work when buying a new car?

Under normal circumstances, you don’t have to add your car to your policy the day you take possession. In fact, most car insurance policies offer a form of grace period for updating your policy after buying a new or replacement car. Frequently, at the time of purchase, the dealer will only require that you show proof of insurance before they allow you to drive away.

Pro Tip:

In most states, your liability insurance is always automatically applied to new or replacement vehicles. The key is to understand the grace period your policy offers. However, if you purchased a nonstandard auto insurance policy, or your insurance carrier is conservative with coverage, the grace period may be short and not apply coverages like comprehensive or collision. You need to consult your insurance agent or insurer before you drive a new or replacement car.

What if you don’t currently have a policy?

Well, even if you don’t have auto insurance, as long as you have the new car’s vehicle identification number, along with your personal details, you can buy a car insurance policy online, or call a local insurance agent. A new policy can be quickly issued either way.

How much does insurance for a new car cost?

All things being equal, the premium for a new car will cost more than your current car. This is simply because newer cars are more expensive to replace or repair. Here are some things that may change and will have an impact on the price of car insurance:

  • Model year: Did you buy a newer car?
  • Make and model: Different makes and models have different pricing
  • Title and damage history: This can impact pricing
  • Amount of coverage: Do you need more coverage? (eg. liability only vs. full coverage)

The news is not all bad, while it is true newer cars can costs a little more than older cars, there are some things that can create discounts. For instance, your new car may have new safety equipment or technology that makes it eligible for new auto insurance discounts

Note: when you get a quote for a new policy, there will be many other factors that impact your pricing.

Get quotes before you buy a new car

Before you buy a new car, you should absolutely get insurance quotes. The cost of insurance is a part of the purchase decision, so you need to know how your new car will affect your insurance premiums in advance.

This may even be a good opportunity to conduct an insurance review with your insurance agent, explore new options, or simply go online to test the market. If you’re interested, you can go to our sister site, to compare new car insurance premiums online.

Doesn’t the dealer insurance cover me to drive home?

No. It is a myth that the dealer’s insurance provides you coverage. The dealer’s policy is designed to protect the dealer and only provides you coverage when you’re on a test drive. Don’t rely on the dealer to provide you protection.

Are there insurance requirements to buy a new car?

When you buy a new car, there will be some insurance requirements. First, you will be required by law in most states to drive the vehicle on public highways. There will also be some requirements based on how you intend to finance or pay for your new car. Below are your requirements by purchase type:

  • When you finance your new car:

    Required coverages: When you get a loan to buy your new car, Comprehensive, and collision coverage is usually by the lender. While the lender will not mandate the amount of liability insurance, your state will have mandatory minimum insurance limits that you will need to carry.

    Optional coverages: When you finance a new car, it is recommended that you purchase gap insurance. Gap coverage will pay the difference between what you owe on the vehicle and the actual value of your car if it’s totaled.

  • When you lease your new car:

    Required coverages: If you opt to lease your new car, the leasing company will require that you carry comprehensive and collision coverages. In fact, some may also mandate that you don’t select a deductible over $1,000. Depending on your agreement, you may also be required to have higher liability coverage limits, typically at $100,000 per person and $300,000 per accident or $300,000 combined single limit.

    Other coverage options: Maybe more important than when you finance your new car, you should consider gap insurance. Note: some lease agreements may already include gap insurance, so check before you add it to your policy.

  • When you pay cash for your new car:

    Required coverages: You only need what your state requires — typically a minimal amount of liability coverage.

    Other coverage options: It is recommended that you review your options with your insurance agent or company to confirm you have the proper coverage for your unique situation.

When do I add a new car to my insurance policy?

As we stated above, when you buy a new car, your insurance carrier will provide a grace period between seven (7) to thirty (30) days to add a new or replacement car to your policy. For example, you can buy your car on Saturday, and safely add it to your policy on the following Monday (2 days) with most policies. Companies like Travelers, Safeco, Nationwide, Progressive, Kemper, and others allow 30 days. In fact, most will also state that a new car has coverage equal to the car with the most coverage during the grace period. In fact, some may even provide a few days of collision and comprehensive at a $500 deductible if you only have liability insurance. 

What does this mean? Well, it means if you have a claim within the grace period, your new car is still covered in the same way your previous vehicle was or the car with the most coverage.

Note: not all insurance carriers offer the same grace period or offer a grace period for all coverages. Be careful before you drive your new car off the dealer’s lot. Ask your carrier or insurance agent to confirm the grace period and what coverages it applies.

Will I get immediate proof of insurance?

Sure. When you add a new car to your policy your insurance agent or carrier can provide you immediate proof. In fact, some insurance company service centers are open 24/7/365 and can send proof of insurance to the dealership if necessary. This can become very important if you don’t currently have insurance as proof of insurance will be required to drive your car off the lot. For those already insured, your current ID card is typically sufficient, allowing you to contact your agent or insurance company when you get home.

What if I don’t have my lienholder information?

Before you leave the dealership, make sure to ask your salesperson to provide you with the lender’s “loss payee” information for your car insurance. They’ll almost always have the information you’ll need.

If the dealership doesn’t have it or you forget to ask, no worries—we won’t need it to start coverage. However, you’ll need to provide the lienholder’s name and address so make sure you get it and provide the information to your insurance agent or company. If you forget, you could get a nasty letter from your lender advising you of your responsibilities and scheduling force-placed insurance if you don’t comply.

Tips for buying insurance for a new car

Generally speaking, adding a new car to your policy is pretty easy. However, there are a few things that you should have ready (and why) before you call:

  • Know your vehicle identification number (VIN): This makes quoting more accurate and will speed up the process. You can get a quote without a VIN, but you cannot purchase a new or change an existing policy without it.
  • Know what the vehicle will be used for: This is important because your policy needs to properly reflect the car to properly assign coverage. For insurance, if you use the car for ridesharing or allowed business errands, you may need different coverages or ratings.
  • Any new drivers to add?: If the new car is for a new household member, you need to be ready to add that person too. Frequently, a new car is a signal that a teenager is preparing to become a driver, if this is the case you need to have them added to coverage.

The bottom line

Understanding how new car insurance works is pretty easy. But how you use the car, how your insurance company treats the grace period, and if you’ll need a new policy or simply a policy change can determine how much information and effort is involved.

Making your insurance premiums part of your new car buying process is a good idea. This will help you be prepared when you finally make your purchase.

If you need help, you can always call us at (877) 334-7646, we are happy to be part of your new car-buying journey.

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