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What Should You Consider When Buying Auto Insurance for a New Car?

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Buying a new car can be one of the most exciting investments you make — and one of the most expensive. To protect that investment, you need a quality auto insurance policy that will cover you and your new car no matter what happens. 

When you purchase your new car, you can choose to stay with the insurer you used for your previous car if you’re happy with the company, or it can be an opportunity to explore other companies for new car insurance. The cheapest car insurance for a new car may be with a different company than you’ve used in the past. In this report, we’ll look at the factors you should consider when buying new car insurance.

Insurance coverage for a new car 

Generally, your insurance needs from one car to another will remain roughly the same. First, you’ll need to meet your state’s minimum liability coverage

After that, there are add-ons, or amendments, that can provide fuller protection for both you and your passengers and the car itself. Here, the value of the new car will play a role: the more expensive the car, the more coverage you’ll want to have against accidents and other perils.

Common insurance types and amendments

  • Collision coverage: If your last car was older, you may not have had this type of coverage, but on a new car, you’ll want collision. This covers your car for damages incurred during an accident, whether you hit another car or cars or a fixed object like a lamp post or fence.
  • Comprehensive coverage: This common insurance covers you for damage caused by anything other than an accident, including vandalism, theft, falling objects like trees, fire or hail damage.
  • Personal injury protection: Also known as PIP, this coverage is mandatory in some states. It will help pay for your medical costs if you are injured in an accident. It may also pay for expenses such as child care and lost income if you are laid up following your accident. 
  • Liability coverage: The most basic type of insurance, liability is mandatory in most states. It includes bodily injury if the other driver or passengers (or pedestrian if applicable) in an accident are injured and property damage costs to their car or other property.  
  • Uninsured/underinsured motorist coverage: Approximately 13 percent of motorists drive illegally without insurance, so it’s not uncommon for accidents to involve an uninsured or underinsured driver. If it happens to you, this type of coverage will pay for your medical bills and, possibly, damage to your car. 
  • Gap insurance: This is an amendment to your policy that covers the difference between what your car is worth and the amount you owe on it. For example, if you buy a new car for $30,000, it begins to depreciate as soon as you leave the lot. A year later, if you total it, it may only be worth $20,000 — despite the fact that you owe $25,000. Gap insurance will cover the additional $5,000 so you can pay off the loan in that case. 
  • Roadside assistance: This is a useful amendment that offers help to you if you experience a car malfunction while driving. It may cover towing and the labor costs for common breakdowns such as a dead battery or flat tire. Ask your agent exactly what is covered if you are interested because coverage varies by company.
  • New car replacement coverage: This is another amendment that can be a lifesaver if your car is less than three years old. With this coverage, if your newer car is totaled in an accident, you’ll receive a check for enough money to replace the car with a comparable model rather than a check for its depreciated worth. You don’t want to have to pay out thousands over your claim check in order to purchase a new car. This coverage takes care of that for you. 

When you have a newer car that is worth more, consider a higher level of coverage than if you’re driving, say, a ten-year-old Ford Fiesta. With an older car, for example, collision coverage is less important because it’s likely that the damage to the car in an accident may be more than the car is worth. Additional coverage types for new car insurance can lead to higher premiums but could save you thousands in the event of an accident.

Also, with a newer car, your deductible is lower than the value of the car, making full coverage more important. If you’re driving around a car worth $1,000, for example, and $1,000 is also your deductible, it makes no sense to carry collision because you are not going to be able to make a claim on the value of the car that is worth the same as your deductible.

Is car insurance for new cars more expensive? 

There are multiple factors that your insurer takes into account when determining your premium costs, including:

  • Age: Younger drivers generally pay more than older, more established drivers, with teens paying the most. Seniors also have higher rates.
  • Driving record: Increasingly, companies are using telematics, small devices or apps that allow them to monitor your driving in real-time. If you have good driving habits (for example, you don’t speed or brake hard), you can earn discounts on your premium.
  • Credit score: A higher credit score makes it more likely that you’ll pay a lower premium rate because you are less risky to the company.
  • The make and model of car you drive: Your brand-new Hummer will cost considerably more than a Honda Civic simply because it’s a more expensive car to repair or replace.
  • Location: Your premium may go down if you’re in a rural area because there are typically fewer accidents in the country than if you’re driving in the city.
  • Insured history: If you’ve had more than one claim on your past car, insurers may increase your premium because they consider you a higher risk of future claims.

Remember that high technology and multiple accessories and gadgets on your new car will increase not only the cost of the car but also the cost of the insurance. Those add-ons cost a considerable amount to repair. Even if they make your drive easier or your car more efficient, it’s worth weighing the extra costs you’ll pay over the years in insurance premiums.

Just as you shop around when purchasing a car, we recommend that you shop around when you are looking for the best new car insurance. Every company will weigh the factors we’ve outlined above a little differently. Identical coverage does not give you identical premium costs from company to company, and a few phone calls may save you hundreds of dollars. 

Do I need insurance before buying a new car? 

How long do you have to get insurance on a new car? Simply put, you don’t want to have any gap in time when you’re not covered as you move from one car to another. In fact, if you are buying your car from a dealership, you’ll need to present proof of insurance before you are allowed to drive the car off the lot.  

Even if your purchase is with a private individual, it is unwise to allow your car insurance to lapse even for a short time. No one ever expects an accident to happen, so make sure your new car insurance is valid and operational before the old policy expires. 

If you don’t know the exact VIN (vehicle identification number) of your new car, you can still shop for insurance by providing the information you do have on make and model. Most insurers will allow you to obtain an online or agent quote without the specifics, and then you can call the VIN number in as soon as you know it. 

Can I add a new car to my existing insurance policy? 

Yes, you can add a new car to an existing insurance policy. In fact, there may be benefits to you if you’re keeping your old car as well and your insurer offers a multiple vehicle discount. You’ll want to talk to your agent so you can customize the policy to suit your needs, especially if your new car is fewer than two years old and you’d like to augment it with new car replacement or gap coverage.

Buying a new car grace period is one factor that is not well understood by consumers. If you are trading in your old car and purchasing a new one, and you intend to stay with the same insurer, you may have a short grace period. It ranges from 7-30 days depending on your insurer before you need to let them know about your new car. During that period, you would be insured to the level of your old car’s coverage.

The takeaway

Although a minimum level of car insurance is required by law in almost all states in the U.S., it’s possible to customize your policy to reflect your situation and car. 

Purchasing a new car is a good time to take a look at your insurer and your coverage and see if you need any changes to your policy to better reflect your car’s value. You may be able to get more or better coverage from another insurer, so it’s worth asking for some quotes. You’ll also want to consider additional amendments to your policy such as gap coverage or new car replacement coverage when you trade in your old car for a new one.

Mary Van Keuren

After 30 years as a writer and editor in academia, Mary now writes full-time for the insurance and finance industries. Her work has appeared on Reviews.com, TheSimpleDollar.com and Bankrate.com, as well as other consumer-focused websites.

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