Why You Need Car Insurance Before Buying a Car

Why You Need Car Insurance Before Buying a Car article image.

Before walking onto a car lot with the intent of driving away with the vehicle of your dreams, be prepared with the proper insurance policy. Having the correct car insurance coverage for your state is an essential part of the process, because without it, the car stays put.

It's also important to get the right policy for your situation so you're not under- or over-covered. Here's what you need to know.

Do You Need Car Insurance to Buy a Car?

You may be able to buy a car without having an insurance policy in place, but it's illegal in most states to get behind the wheel and drive without having at least a minimum amount of coverage in place. In fact, you will need to show the seller proof of insurance before leaving the lot.

The only exceptions are Virginia and New Hampshire. If you don't have car insurance in Virginia, you will need to pay an uninsured motor vehicle fee to the state first; in New Hampshire, you'll have to post a cash bond. In both states, though, being insured is best because it can help protect your finances if you're involved in a crash.

Can You Transfer an Existing Car Insurance Policy?

If you have an insurance policy on your current vehicle, you may be able to add your new car to it. The process is simple: Just call your insurer company and make the transfer over the phone with help from a representative. You may even be able to do it on the company's website. If you're financing the vehicle, you'll need to provide the insurance company with the lender's address and phone number, so have that information ready to go.

To avoid lapses in coverage, contact your insurance company as soon as you buy a new car. Some insurance companies offer a grace period for new cars, but it depends on your state. If there is a grace period where you live, you'll have a number of days to drive the new car before adding it to your existing policy.

How to Get Car Insurance if You Don't Have an Existing Policy

No policy in place? That's OK; start the car insurance process now. Gather as many of the following pieces of information as possible:

  • Your home ZIP code, marital status, occupation and highest level of education
  • Whether you're a renter or homeowner
  • The number of licensed drivers in your household
  • The type of driver's license you have
  • If you have violations or accidents on your driving record
  • The primary use of the car
  • An estimate of the annual miles you will drive
  • Whether the car is paid, leased or financed
  • The type of coverage you want
  • The make, model and year of the car
  • If the car is equipped with an anti-theft device or has certain safety features, and if so, the type

Of course you may not know the car you want until you're at the lot, so have everything else but the vehicle information. You can get the insurance policy the same day you make the purchase.

How to Choose the Right Car Insurance Policy

There are several kinds of car insurance coverage. Some are required, others are recommended: 

  • Liability: Most states require at least a minimum level of liability coverage. Liability covers personal injury costs and damage to other people's vehicles when you are legally responsible for an accident.
  • Collision: This coverage pays for damage done to your vehicle in an accident.
  • Comprehensive: For non-collision types of damage, such as damage caused by theft or weather, comprehensive coverage will cover the costs.
  • Uninsured and underinsured motorist: If you get into an accident with someone who doesn't have enough or any car insurance, uninsured and underinsured motorist insurance will help you pay for damages.
  • Medical coverage or personal injury protection: This type of coverage is designed to cover at least some of the costs of medical care for you and other people in your car in case you get into an accident.

Choose carefully. If you don't have the right policy, you can be out a huge sum of money. Being sufficiently insured will give you peace of mind that if something does happen to you, your passengers, your car or others, you'll have some financial protection. On the other hand, carrying excessive coverage will cause you to overpay.

To get the right car insurance policy, make sure you:

  • Understand your state's requirements. There is no federal standard for car insurance, so learn the minimum car insurance coverage for the state you live in. At the very least, abide by the minimum.
  • Consider what you want to include. The bare minimum may not be enough for you to sleep soundly at night, so consider what types of car insurance coverage you'd be more comfortable having.
  • Obtain multiple quotes. Many insurance companies offer car insurance policies, so the most efficient way to search for quotes is often with an online insurance comparison tool.
  • Read insurance company reviews. A quick online search can find you reliable and comprehensive insurer reviews from companies including J.D. Power, U.S. News & World Report and Experian. Make sure the reviews you read apply to the region of the country you're in, as service quality can vary by location.

Once you choose an insurance company, you can call and talk to an agent or purchase your policy online. You should have a good idea of what you want, but a representative can help you be sure you're properly covered. The company will then send you a summary of your coverage and your insurance cards. Always keep proof of your insurance with you.

How to Save Money on Car Insurance

Car insurance can be a significant item in your budget, so take steps to reduce costs without sacrificing necessary coverage. Some factors are not under your control, such as your age and driving record, but there are some things you can do to reduce the cost of car insurance, including:

  • Looking for discounts: Contact the insurance company to find out if it offers a discount to customers who have a record of safe driving, bundle the policy with other types of insurances, maintain good grades, or are of retirement age and have an accident-free driving history.
  • Buying a less risky car: Insurance premiums are more expensive for sports cars and luxury models, so you may want to consider this when purchasing the vehicle. Driving a car that insurers consider especially low-risk, such as one equipped with advanced safety technology, can save you money on coverage.
  • Increasing your credit score: Except in California, Massachusetts, Hawaii and Michigan, insurance companies can assess your credit (usually by using a credit-based insurance score) to determine the amount of your premium. A higher score can help lower the cost of your policy. Consequently, paying your credit accounts on time and keeping your credit card balances well under the accounts' credit limits will save you money on car insurance.

It's smart to plan ahead and secure insurance before you start shopping for a car. After all, you don't want to leave that beautiful set of wheels behind because you can't show proof of coverage.

But you don't want to pay too much every month for a car insurance policy. If you live somewhere your credit can be used to set your premiums, taking steps to improve it by paying your bills on time, addressing any late payments and reducing your credit utilization can all help you secure a better rate. Also, be sure to understand the level of coverage that's legally required as well as what makes the most financial sense. Carrying just the minimum can leave you high and dry if you're involved in an accident.