Guide to Insurance for New Cars

You can buy a car without insurance, but in most states, you won’t be able to drive it off the lot until your car is insured. Even if your state doesn’t require it, auto insurance protects you from paying out of pocket for the full cost of an accident.

You have two options when insuring a new car: You can sign up for a new policy or transfer your existing policy to cover your new vehicle. With insurance coverage, you can file a claim in the event of an accident.

Starting a New Policy

If you choose to start a new policy, shop around to find the best coverage within your budget. Even if you haven’t picked a make or model yet, you can get an insurance quote on your potential car purchase.

If you choose to get a car insurance quote, find out your state’s minimum coverage requirements and your desired coverage. It is smart to request at least three quotes from different companies. Use the same information for each request to make it easier to compare rates directly and choose the right match for your new vehicle.

Regardless of how you purchase a new car, you must meet your state’s minimum insurance requirements. While these requirements differ by state, below are some of the coverages you can expect to need.

• Liability coverage: Liability coverage covers damage or injuries to other parties in accidents where you are at fault.
• Uninsured/underinsured motorist coverage: When an uninsured or underinsured driver hits you, uninsured motorist coverage (UM) and underinsured motorist coverage (UIM) take care of your expenses⁴.
• Medical payments coverage or personal injury protection: Medical payments coverage (MedPay) pays for your and your passengers’ medical expenses that result from car accidents. MedPay is only available in at-fault states. Personal injury protection (PIP), on the other hand, includes medical payments coverage but covers other documented losses, such as lost wages and child care costs. PIP is only available in no-fault states like Florida.

Other insurance coverage requirements depend on whether you are buying, leasing, or financing a new car.

Buying a Vehicle

If you are buying your car outright, you only need to meet your state’s minimum coverage requirements.

Leasing a Vehicle

When you lease a vehicle, you pay to drive it for a specified period. Once your lease ends, you either renew the lease, return the car, or buy it.

Since you don’t actually own a leased vehicle, the lessor may require more coverage than the mandatory minimums, such as comprehensive and collision coverage, until you complete the payments. Whether or not you are at fault in an accident, collision coverage will cover damages to your vehicle. Comprehensive coverage covers all other damages not related to collisions like vandalism or auto theft.

Additionally, a leasing company may have a minimum deductible amount you must meet while paying off your vehicle. Since higher deductible payments often lower premium costs, the minimum deductible will increase your monthly costs⁵.

Financing a Vehicle

Financing a vehicle is similar to leasing, but instead of paying to drive a car, you pay to own it. A bank or dealership may require certain insurance limits for a financed car. These limits ensure you have the means to keep paying your loan if you get into an accident.

Your financing terms won’t change if your car is damaged, but you will still be responsible for loan payments. You could benefit from gap insurance while financing a car: If the car is totaled, gap insurance will pay the difference between what you owe on a vehicle and its actual cash value⁶.

The average cost to insure a new car is $1,852 annually. Your rates for insuring a new car may be more or less than the average, depending on your driver profile and prospective car purchase, however. Auto insurance rates depend on these factors:

• Make and model
• Model year
• Title and damage history
• Mileage
• State and ZIP code
• Deductibles
• Age
• Marital status
• Homeownership
• Your driving records, including any at-fault accidents
• Coverage options (i.e., the more coverages you get, the higher your rates)
• Provider (different car insurance companies charge different rates for similar products and services)
• Gender (except in California, Hawaii, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania)
• Credit score (except in California, Hawaii, Michigan, and Massachusetts)

Vehicles will have cheaper insurance rates if they have low repair costs, strong safety records, or anti-theft features.

It is a dealership’s responsibility to insure its vehicles in the event of possible damages, not your responsibility as a potential buyer⁷. However, dealer insurance only covers test drives, so you will not have protection once you buy the car.

Whether or not your state requires auto insurance, you can protect yourself against damages by insuring your new vehicle. Stay up to date on your state’s minimum requirements and reassess your policy annually to avoid overpaying for coverage you don’t need.