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When buying a new car, when do you need insurance?

Here's what you need to know...
  • When you buy a vehicle, you need to prepare yourself to buy auto insurance so that you can legally drive the vehicle off the lot
  • Auto insurance is a legal requirement when you exercise your right to own a vehicle. If you buy a new vehicle, most states have legislation saying that you must maintain liability insurance or no-fault insurance to pay for medical expenses and third-party property repairs
  • Legally, when you take over ownership of a vehicle, you need to possess insurance. If you’re buying the car from a new car dealer, the dealer fills out registration paperwork for you. This means that you need insurance before you leave the dealership
  • Most new car buyers will take out an auto loan to make the big purchase. If you’re financing your vehicle through the dealer or through your credit union, you need to show that you have full coverage on the car before you can leave with the keys
  • The dealer may accept proof of insurance on another vehicle that you own when you’re providing documentation. That’s because existing insurance extends to new cars for up to a month

Buying a new car can be an involved task. Not only do you need to find the right vehicle type, model, and auto loan, but you also need to choose a reputable dealer to do business with. While it can be a time-consuming task, if you invest effort in preparation, buying a new car doesn’t have to be as stressful as you imagined.

You can get your loan pre-approved, research sticker prices, look for promotions, and even test drive cars before you’re serious about sitting down with a finance manager. Unfortunately, so much focus is put on preparing to buy that many prospective buyers overlook how important it is to get quotes for insurance coverage. After all, you have to have insurance on a new car as soon as you sign on the dotted line.

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When are you required to bind your auto insurance coverage on a new car?

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By law, you have to have auto insurance when you register a vehicle in your name. Since most insurers won’t issue a policy that you have no intentions of becoming the registered owner of the car, you technically can’t buy insurance until you have a financial interest in the car. The rules when you buy a new car at a dealership are a bit different.

You can’t wait until you take your first trip to the DMV. One of the luxuries of buying a new car is that the dealership has an entire administrative department in charge of filling out and submitting paperwork to transfer the title and the registration. Since the paperwork will be on file as soon as you drive away, you must have the coverage that’s required in your state before you can drive your new car away.

What type of coverage must you carry?

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The agent processing the paperwork can’t send a new car buyer off without insurance. This puts the buyer at risk and other drivers on the road. The DMV grants authority to issue temporary tags to representatives of licensed dealerships, but these representatives must follow the rules and request proof of insurance during the transaction.

To satisfy the requirements set by the DMV, you only need to show that you have the mandatory coverage that you need to register a car and avoid penalties. A majority of states only require low limits of liability coverage, but some of the states with modified no-fault laws will require other coverage. Here are the common basic coverage requirements:

  • Bodily Injury Liability
  • Property Damage Liability
  • Personal Injury Protection (required in no-fault states)

When do you need to prove that you have comprehensive and collision?

State officials have no interest in knowing whether or not you have physical damage coverage to repair your own car. This is why your proof of insurance cards strictly how that you have liability insurance but don’t detail other coverage options carried on the policy. You still may have to prove you have full coverage before you leave the lot.

You don’t have to show you have comprehensive or collision unless you’re financing the vehicle through your bank or through a finance company that the dealer recommends. Since the finance company has thousands of dollars on the line, they require proof that you have full coverage to close the loan. The finance manager will ask that you provide this while you’re in their office.

Does your current insurance protect you when you buy a new car?

One of the great things about having insurance when you’re going to buy a car is that it helps makes the process easier. Insurance policies have special provisions written into them that will protect the policyholder if they buy a new car. Under the definition of coverage autos, a newly acquired vehicle will be protected for a limited period of time.

How long is a newly acquired vehicle covered under your insurance?

You still need to contact your insurer to add your vehicle within a reasonable amount of time. With this being said, you will have a few days to enjoy your vehicle without having to worry about conducting more business. Most carriers will provide the broadest amount of coverage on the new car for 14 to 30 days. When the time is up, there will be a lapse unless you’ve added the car.

What happens if you don’t have full coverage on any other vehicle?

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If you own older vehicles that aren’t worth much, it doesn’t make sense to carry full coverage. When you have a liability-only policy, you still have to satisfy the finance company’s full coverage requirement at the inception of the loan. This can pose a problem when you want to use your automatic coverage extension.

Luckily, personal auto insurance policies will provide policyholders without damage coverage 4 days of automatic comprehensive and collision protection. This helps you secure protection if you buy on a holiday weekend. After the 4 days is up, you must add the car to prevent having an uninsured physical damage loss.

Don’t focus so much on the purchase price of a car that you overlook budgeting insurance costs. Shop around and compare both interest and insurance rates during your free time. One way that you can find low auto insurance premiums is to use an online rate comparison tool.

Compare insurance rates online today for your new car by entering your ZIP below!

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