Do You Need Insurance Before You Buy a Car? It Depends

Buying a car is stressful enough, and then you must worry about car insurance. It almost seems cruel.

To make it easier on yourself, I suggest ironing out insurance details before heading to a car dealership. If you don’t, you must figure out your insurance situation while you’re in the finance office hashing out the details of the deal.

The good news is that the process is much easier if you already have an existing policy. If not, you’ll need proper insurance before you can get behind the wheel. To ensure your vehicle has the necessary protection, here's what you must know.

Do you need insurance before you buy a car?

Before you can drive a vehicle off the lot at the dealership, you must have insurance. In fact, dealerships typically require you to provide proof of insurance before you can take your new car home. While it sounds annoying or like another stress to consider, it’s for your own financial protection. If you cause an accident on the way home, you’d be responsible for all the costs, plus you’d likely violate your state laws and the terms of your loan contract.

New Hampshire and Virginia are the only states that don’t require minimum car insurance coverage limits. All other states require car owners to have at least some liability insurance coverage.

If you live in New Hampshire or Virginia, you must:

• New Hampshire: Demonstrate that you have enough funds to meet the state's financial responsibility requirements if you cause an accident.
• Virginia: Pay a $500 fee when registering your vehicle and pay it again yearly when you renew it. You’re also responsible for any bodily injuries or property damage you may cause in an accident.

In addition to liability insurance coverage, some states require you to carry some or all of the following types of coverage:

• Uninsured and underinsured motorist coverage
• Personal injury protection (PIP for short)
• Medical payments coverage

Your loan contract may also require you to purchase collision and comprehensive coverage. Many lenders require these to protect their interest in the vehicle.

How to insure a new car if you have an existing insurance policy

If you already have an auto insurance policy on a vehicle you currently own, even if you’re trading it in, you meet the necessary requirements to drive the car off the lot.

Most insurance carriers automatically cover the brand new car at the same level as the other vehicles on your current policy. However, there is a limited time grace period usually between seven and 30 days to update your policy to include the new car.

I suggest calling your insurance company as soon as you arrive home with your new vehicle. You may also be able to switch the coverage online. You’ll need the details of your new vehicle, as well as to inform the insurance company if you no longer own a previously insured car.

How to insure a new car if you do not have an existing policy

If you don't have an existing auto insurance policy, you can’t drive the car off the lot until you have proper coverage.

Here’s what I suggest:

• Contact a few auto insurance companies and start the quote process
• Provide details about yourself (name, address, birthdate, driver’s license number, and Social Security number)
• Provide details about the proposed vehicles you’re considering
• Choose the insurance company with the most robust coverage and affordable premiums

When you’re finalizing the details of the sale, update the insurance company with any details, including the car’s VIN, and you’ll have insurance before you leave the finance office.

Tips to save on your auto insurance coverage

Auto insurance is required by law (in most states) and protects you financially, but that doesn’t mean you must overspend. Here are some tips to save money on your car insurance coverage:

• Start early. Don’t wait until you’re at the dealership to shop around for car insurance. Start the process before shopping for cars. The quotes may help you narrow your options based on the cost of the premiums. Plus, it reduces the stress of buying a vehicle.
• Shop around. It's crucial to compare coverage from multiple insurance carriers before you settle on a policy. Shop with the best car insurance companies to compare offers side by side.
• Bundle your coverage. If you also have a homeowners or renters insurance policy, you might qualify for a discount on your auto policy by bundling it through the same insurance company. The same can go for motorcycle insurance, boat insurance, RV insurance, and life insurance.
• Maintain a safe driving record. Your driving habits are a significant factor in your insurance premiums because someone with at-fault accidents and moving violations in the recent past might be more likely to file claims than someone with a clean record. If you do get a ticket for a moving violation, check with your local police department or court to see whether you can have the ticket removed from your record in exchange for attending traffic school.
• Opt for a higher deductible or lower coverage. I suggest you don't skimp on coverage, but if you want to save money, you could avoid getting the maximum liability protection or skip optional coverages like rental car reimbursement and roadside assistance. Also, if you have comprehensive and collision coverage, opting for a higher deductible could result in a lower premium. Just be sure you can afford the car insurance deductible if you file a claim.
• Look for discounts. Auto insurance companies typically offer discounts to incentivize people to buy a policy. With each insurer, take your time to find out which discounts they offer and whether you qualify. The more discounts you can get, the less you'll pay.
• Improve your credit. In several states, insurers use a credit-based insurance score as one of the factors that affects car insurance rates. If you have a high credit score, you're statistically less likely to file an insurance claim, which could mean a lower premium.

FAQs

Bottom line

You need car insurance before you buy a car, but if you have an existing policy, you have more time to finalize the details. If not, I suggest doing the legwork before looking at cars so you know what insurance will cost and you have the process started.

You’ll typically find better deals shopping for car insurance yourself, rather than accepting suggestions from the dealer. Plus, having the majority of the work done ahead of time makes the car buying process much less stressful.