When it comes time to purchase a new car, insurance policies
tend to be an afterthought.
After all, new cars are shiny, and insurance policies are
"Consumers are not usually prepared," says Will Rumpa, a sales
City Auto Park
in Burlington, N.J., says. "They're not really sure what they have
to do [to insure the car]."
Rumpa says most customers rely on the dealership to walk them
through the insurance process. This typically involves simply
calling an existing or new insurer with the 17-digit Vehicle
Identification Number (VIN) so it can generate a policy for the
driver. Proof of this policy is then faxed over to the
But failing beforehand to make a couple of phone calls or spend
a few minutes online can work against you.
Simply calling one company "will probably lead to bad rates,"
says CarInsurance.com consumer analyst Penny Gusner. It can also
serve as a rude awakening should the quoted monthly premiums
associated with the car put it out of your price range.
And they can, easily. A CarInsurance.com analysis of 43,000 car
insurance quotes last year found the difference between the two
cheapest rates for a driver under age 25 averaged $92 a month. (See
Pocket $1,102 just by shopping around
Are you already covered?
An insurance policy in your name prior to a purchase does not
mean your new wheels will automatically be covered.
Some companies will extend coverage on the vehicle that is
replacing your old one for a short period of time, generally around
14 to 30 days. During this window, you will have to formally
transfer the policy to the new car.
However, your new car may require more coverage than your old
one, Gusner says.
For example, if you are borrowing money, a lender will usually
require collision and comprehensive coverage to protect the value
of the new car. If you didn't have that coverage before, you would
not have that coverage on the new car unless you buy it, Gusner
Cars that are simply being added to an existing policy generally
will not be covered until you inform your insurance company about
"Some insurers, in some states, will provide coverage for 72
hours after you buy a car," Gusner says. However, it's important to
check with your insurer before actually driving away in the car to
What if this is your first car?
In order to drive off a lot, you will need to show a dealer you
have purchased a policy that meets the state's mandatory liability
limits so that a temporary tag can be issued for the vehicle.
Minimums do vary state by state. You can check out this map for a
complete round up of each
state's insurance requirements
Minimum coverage may be appropriate if you have little savings
or few assets to protect. Usually, though, state minimum levels are
inadequate. The average new car costs about $30,000 -- and you are
responsible for what your insurance doesn't pay. (See "
Expensive car, cheap car insurance
According to Gusner, most consumers opt for coverage that
provides up to $100,000 per person and $300,000 per accident for
bodily injury liability and up to $50,000 for property damage
You also may need to show proof of this policy to any bank or
other lender before it will agree to finance the purchase. That
lender is also likely to require that you to add comprehensive and
collision coverage to your policy.
Collision and comprehensive, which are not required by the
state, will repair or replace your own car if you are at fault in
an accident, hit by an uninsured driver or are the victim of theft
or fire. You'll need to choose a deductible amount for each
coverage, typically from $250 up to $1,000.
"The lower your deductible, the higher your premium will be,"
You might also consider gap coverage if you haven't put a
considerable amount of money into the deal as a down payment. If
the car is totaled while you owe more than it is worth, gap
insurance makes up the difference.
Know before you go
Gusner suggests collecting quotes from insurance companies
before heading out to the dealerships.
While there's nothing that prohibits you from switching carriers
after you've already insured the vehicle, some providers do charge
early cancellation fees, Gusner says, and you will have to file new
paperwork with your local department of motor vehicles without the
help of the dealership.
Before requesting quotes, it's important to do some research on
the vehicle itself. Certain safety fixtures, like anti-theft
features or additional airbags, may entitle you to a discount.
"If you do find out afterward [about a feature], call up your
company and ask if it will lower the price of your policy," Gusner
Shopping for car insurance before you shop for the car has
another benefit, too: What you save on insurance, you can spend on