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Nerdy takeaways
- Auto insurance is required to buy a new car.
- You can get insurance before you buy a car, as long as you know the make and model of your future vehicle.
- You can cover your new car with an insurance policy you already have, but your rates will likely change.
- Because insuring a new car will likely cost more than insuring an older model, it’s a good idea to factor this extra cost into your budget.
If you’re going to buy a new car, you need insurance. While it’s technically possible to buy a car without having insurance, dealerships often require you to insure your new car before you can drive off the lot.
All states require car insurance, with a couple of narrow exceptions in New Hampshire and remote parts of Alaska. But in all other states, you must show proof of insurance before you can start driving. To be legally insured, your car insurance policy must meet the minimum car insurance requirements in your state.
Here’s what you need to know before you buy insurance for a new car.
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When do I need to buy insurance for my new car?
You need to have insurance before you buy a new car, but your exact timing depends on the coverage you already have.
- You don’t have car insurance. You’ll need to buy a policy before you can drive your new car. You can get insurance ahead of time as long as you have some specific information, like the VIN (vehicle identification number), of the car you’re going to buy.
- You do have car insurance. You can show your insurance card to the dealership as proof you have coverage. Your current coverage will extend temporarily to your new vehicle, but you’ll still need to officially add your new car to your policy. Some insurers give you a grace period of seven to 30 days to let them know about a new vehicle.
You may be able to buy insurance from the dealership, but it’s likely a bad idea. The dealership may try to upsell you on other insurance products, such as gap insurance. If you have an insurance policy you feel confident about, you won’t be persuaded to pay more for extras.
🤓 Nerdy Tip
If you already have car insurance, your premium will change when you insure your new vehicle. Budget for higher insurance rates ahead of time if you’re planning to buy a new car or a second vehicle. One reason for higher rates is that new cars may have features like backup cameras, built-in Bluetooth systems and other technology that make them more expensive to repair. How to get auto insurance before buying a car
If you don’t have car insurance, you’ll need to get a policy before you drive your new car. It might sound odd to buy insurance for a car you don’t own yet, but it’s pretty straightforward:
- Take note of the car’s make and model. Take some time to compare cars and identify the vehicle you want.
- Gather information about your vehicle of choice. To buy an insurance policy, it can be helpful to know the vehicle make and model, VIN, mileage and your driving record. If you don’t know the VIN or mileage, you can tell your insurer the make, model and year of the car you plan to buy.
- Compare insurance quotes. It might be tempting to go with the first insurer you come across, but you may find more affordable rates if you shop around. NerdWallet allows you to compare rates from many of the country’s largest insurers.
- Submit an application. Once you decide which insurer is right for your needs, you can complete the application process. Depending on the insurer, you may be able to complete the application process online. However, if you don’t know the details of the car (like the VIN), you’ll be able to get a quote, but you won’t be able to finalize your purchase until you can provide this information.
- Buy your vehicle. Once you have proof of insurance, or a carrier willing to cover you, you’re all set to buy your new car.
How much insurance do I need for a new car?
The amount of auto insurance that you need depends on a variety of factors, such as your car’s age, whether you have a car loan or lease and your state’s legal minimum insurance requirements.
NerdWallet recommends buying more than the minimum level of insurance that your state requires. Without enough insurance, you risk having to pay any accident-related expenses that your policy won’t cover, including repairing or replacing your new car.
Here's what to know.
State minimum car insurance requirements
Your new car insurance policy must meet your state’s minimum car insurance requirements. These requirements vary by state, but they tend to include the following types of coverage:
- Liability insurance pays for injuries or damage to others’ property after an accident you cause, up to your policy’s limits. Every state, except Virginia and remote areas of Alaska, requires a minimum amount of liability insurance.
- Uninsured and underinsured motorist coverage are required in nearly half of the states. These coverage types pay for your medical expenses or property damage if you’re in an accident caused by a driver without any car insurance or with minimal liability limits.
- Personal Injury Protection (PIP), sometimes called no-fault insurance, covers you and your passengers’ medical expenses after a crash, regardless of who caused the accident. PIP may also pay for lost wages if you’re unable to work due to injuries from a crash.
Does every state really require car insurance?
The short answer is yes, but it’s complicated. New Hampshire only requires drivers to show proof of financial responsibility after certain driving violations and accidents, or risk a license suspension and massive out-of-pocket costs. Having an insurance policy is one of a few ways that you can prove your financial responsibility, along with a surety bond and cash or securities deposit. But the amount of money needed for a bond or deposit — and the potential of covering all of the expenses related to an accident by yourself if you drive completely uninsured — makes those options unrealistic for many people.
Full coverage insurance
If you have a car loan or lease, your lender or leasing company likely requires you to have full coverage car insurance. Full coverage isn't a kind of insurance policy, but a combination of different coverage types.
Full coverage typically includes your state’s minimum requirements, plus:
- Comprehensive insurance, which covers damage to your car from things like fire, hail, vandalism and theft. Comprehensive insurance pays out up to the current market value of your car, minus your deductible — a set amount subtracted from a claim payout.
- Collision insurance, which pays for damage to your car from crashes with objects or other vehicles. Collision insurance also pays out up to the market value of your car, minus your deductible.
Gap insurance
Gap insurance is typically required by leasing companies and lenders, even though no states require it.
If your car is totaled or stolen, gap insurance covers the difference between the remaining balance of your car loan or lease and the car’s current market value. Without gap insurance, you’d be responsible for paying that difference, which could be thousands of dollars if an accident totals your new car.
Here’s how it works. Let’s say you owe $30,000 on your auto loan, but the market value of your car is $25,000. If you totaled your car, your insurance company would only cover up to $25,000, minus your $500 collision deductible. Without gap insurance, you’d owe your lender the remaining $5,000 difference between your car’s value and your loan’s balance.
| Gap coverage example | ||
|---|---|---|
| Loan left to be paid | $30,000. | |
| Current value of car | $25,000. | |
| Collision insurance deductible | $500. | |
| Collision insurance pays your lender | $24,500. | |
| Amount still due on loan after insurance claim payout | $5,500. | |
| With gap coverage, driver only pays deductible | $500. | |
| Without gap coverage, driver pays deductible and pays off auto loan | $5,500. | |
New car replacement coverage
If a crash totals your new car, or if it's stolen, new car replacement insurance will pay to replace it with a vehicle of the same make, model and value.
While comprehensive and collision insurance will pay up to the actual cash value of your vehicle, minus the deductible, new car replacement covers the entire cost of replacing your vehicle with a new car of the same make and model, minus your deductible.
See what you could save on car insurance
Easily compare personalized rates to see how much switching car insurance could save you.
How can I save on new car insurance?
To stay under budget and get the best deal on insurance for your new car, shop around and compare quotes from multiple insurance companies. It’s also a good idea to shop around once a year and switch insurers if you find a more affordable option that still satisfies your coverage needs.
» MORE: Average cost of car insurance
Here are some ways you can lower your auto insurance bill:
- Increase your deductible. Raising your deductible will lower your rate, but your deductible would come out of any payment you receive from your insurer after a claim. Only consider it if you know you could afford to make up that amount yourself.
- Bundle policies. You might save by combining or bundling your auto policy with another insurance policy under the same company, such as bundling home and auto insurance together.
- Ask about discounts. Insurers may offer discounts for things like having protective equipment in your car (like air bags or a burglar alarm), safe driving and taking safe driving courses. Military members and federal workers can often qualify for discounts, too.
- Build your credit. Many insurers use a credit-based insurance score to price rates, and drivers with poor credit tend to pay more for car insurance than those with good credit. You can build your credit by making on-time payments and keeping your credit card balances low. NerdWallet recommends staying under 10% of your total credit limit. Not all states allow insurers to use credit to price rates.
Buying a new car can be expensive, but it’s better to hunt for discounts and use other cost-saving methods than to compromise on coverage you need and risk being underinsured.
Methodology
NerdWallet found median insurance estimates based on data collected about the largest insurers in all 50 states and Washington, D.C. Rates were for 35-year-old male and female drivers with good credit, no tickets or violations, and with the following coverage limits:
- $100,000 bodily injury liability coverage per person.
- $300,000 bodily injury liability coverage per crash.
- $100,000 property damage liability coverage per crash.
- $100,000 uninsured motorist bodily injury coverage per person.
- $300,000 uninsured motorist bodily injury coverage per crash.
- Collision coverage with $1,000 deductible.
- Comprehensive coverage with $1,000 deductible.
In states where required, minimum additional coverages were added. Some policies include additional coverages at the insurer’s discretion. These are sample rates generated through Quadrant Information Services. Your own rates will be different.
Vehicles listed were among the top-selling models in the U.S. in 2023, according to data collected by Kelley Blue Book. Starting MSRP and insurance rates are for 2024 models.
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