New Car Insurance: What to Know

Purchasing a brand new car is exciting, but before you drive off the lot, you’ll need to show proof of insurance coverage.

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Although it may be possible to buy a car without insurance, most dealerships require that you have insurance coverage before you can drive off in your new vehicle.

All states, except Virginia and New Hampshire, require car insurance. If you live in a state where car insurance is required, you must show proof of insurance. 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 about insurance coverage when you're shopping for a new car.

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When should I buy insurance for my new car?

If you don’t currently have car insurance, you’ll need to buy a policy before you can drive your new car.

If you already have a car insurance policy, you can show your policy at the dealership as proof of coverage. This will allow you to buy a car, but you'll still need to contact your insurance carrier about your new purchase. Most insurers offer a grace period of seven to 30 days to inform them of a new vehicle.

However, even if you have coverage, it’s wise to tell your insurance company that you plan to get a new car before you buy. Since new vehicles are generally worth more than older cars, your new car insurance premium will probably be more expensive. You’ll want to factor the new premium into your budget ahead of time.

Another reason to talk with your insurance company before buying your car? The dealership may try to upsell you on various insurance and other financial products. It’s a good idea to already have an insurance policy you feel confident about, so you won't be persuaded to pay more for extras.

How to buy auto insurance without 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:

  1. Know your make and model. Take some time to compare cars and identify the vehicle you want.

  2. Gather information about your vehicle of choice. To buy an insurance policy, it can be helpful to know the vehicle make and model, vehicle identification number, or 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 (such as a 2022 Toyota Camry).

  3. Compare insurance quotes. It might be tempting to go with the first insurer you come across, but it can be worth it to shop around. Check out NerdWallet's car insurance comparison tool to find the best rates for your auto insurance needs.

  4. Submit an application. Once you choose an insurance company, it's time to apply for your policy. 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 likely need to complete your application over the phone with a customer service representative.

  5. Purchase your vehicle. Once you have proof of insurance, or a carrier willing to cover you, you’re all set to head to the dealership and buy your new car.

How much is new car insurance?

New cars have more features (like backup cameras and Bluetooth speakers) than older cars and typically have higher values than used cars. New cars are also more expensive to repair. It’s likely that a new car insurance premium will be more than the premium for your previous vehicle.

According to NerdWallet's 2022 rates analysis, the average annual cost to insure a new car is $1,630 for a good driver with good credit.

How much insurance do I need for a new car?

If you have a car loan or lease, you'll likely be required to have full coverage car insurance. Full coverage isn't a type of insurance policy, but instead, refers to a combination of many different types of coverage. Full coverage can include comprehensive coverage, collision insurance, liability insurance and other coverage.

If you are leasing your car you’ll also be required to have gap insurance. If you total the vehicle or it’s stolen, gap insurance pays for the difference between the balance of your car loan and the value of your car, which can be thousands of dollars. Without gap insurance, you’re responsible for paying the difference.

If you don’t have a loan or lease, the policy must at least meet your state’s minimum car insurance requirements. Though purchasing state minimum coverage is usually the cheapest option, you’ll likely want more coverage for a new car. The reason? It’s expensive to repair damage to a new vehicle, and even more expensive to replace one entirely. You don’t want to be left without cash after a crash.

Gap insurance example

For new car owners, gap insurance is a smart purchase that can save thousands of dollars. If you lease, gap insurance will likely be required by the contract. Those who have a car loan should consider gap insurance as well.

Let’s say you owe $30,000 on your car loan, but the value of your car is $25,000. If your car is totaled in a crash, collision insurance will pay for the value of your car, minus the collision deductible. If your collision deductible is $500 dollars, then collision insurance will pay $24,500. But, you would still be on the hook for the remainder of your car loan. Without gap insurance, you would owe the lender $5,500.

Gap insurance pays for that last $5,500, minus your gap insurance deductible. If your gap insurance deductible is $500, insurance will pay your lender $5,000, leaving you to pay $500.

Gap coverage example

Loan left to be paid

$30,000.

Current value of car

$25,000.

Deductible

$500.

Comprehensive 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.

Smart coverage options for new car owners

If you don’t have a car loan or lease, you should still consider purchasing more coverage than the minimum for a new car. Here are some other coverage options you may want to add.

Comprehensive and collision coverage

Comprehensive insurance covers you for things such as fire, hail, vandalism and theft. Comprehensive insurance will pay up to the value of your car, minus your deductible, if your car is damaged or totaled in a covered incident. A deductible is a set amount subtracted from any claim payout. If you have a car loan or lease, comprehensive coverage will probably be required by your lender.

Collision insurance covers you for damage related to crashes with objects or other vehicles. Collision insurance will pay up to the value of your car, minus your deductible, if your car is damaged or totaled in a covered event. If you have a car loan or lease, it’ll probably be required by your lender.

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New car replacement coverage

New car replacement coverage pays to replace your car with a vehicle of the same make, model and value, minus your deductible.

If your car is totaled in a covered incident, comprehensive and collision insurance will pay for the actual cash value of your vehicle, minus your deductible. However, because cars depreciate quickly from the time of purchase, your $30,000 car may only be worth $25,000 when you have an accident.

Unlike comprehensive or collision, which would only pay $25,000 minus your deductible, new car replacement coverage will pay for how much it costs to replace your vehicle with a car of the same make, model and value, minus your deductible.

Methodology

Auto insurance rates

NerdWallet averaged rates based on public filings obtained by pricing analytics company Quadrant Information Services. We examined rates for men and women for all ZIP codes in any of the 50 states and Washington, D.C. Although it’s one of the largest insurers in the country, Liberty Mutual is not included in our rates analysis due to a lack of publicly available information.

In our analysis, “good drivers” had no moving violations on record; a “good driving” discount was included for this profile. Our “good” and “poor” credit rates are based on credit score approximations and do not account for proprietary scoring criteria used by insurance providers.

These are average rates, and your rate will vary based on your personal details, state and insurance provider.

Sample drivers had the following coverage limits:

  • $100,000 bodily injury liability coverage per person.

  • $300,000 bodily injury liability coverage per crash.

  • $50,000 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.

We used a 2019 Toyota Camry L in all cases and assumed 12,000 annual miles driven.

These are rates generated through Quadrant Information Services. Your own rates will be different.

Renters insurance rates

NerdWallet averaged rates for 30-year-old men and women for multiple insurance companies in every ZIP code across all 50 states and Washington, D.C. We also averaged rates by city. Sample tenants were nonsmokers with good credit living in a two-bedroom apartment.

They had a $500 deductible and the following coverage limits:

  • $30,000 in personal property coverage.

  • $100,000 in liability coverage.

  • $10,000 in additional living expenses coverage.

  • $1,000 in medical payments coverage.

These are sample rates generated through Quadrant Information Services. Your own rates will be different.

Home insurance rates

​​NerdWallet averaged rates for 40-year-old homeowners from a variety of insurance companies in every ZIP code across all 50 states and Washington, D.C. Sample homeowners were nonsmokers with good credit living in a single-family, two-story home built in 1997. They had a $1,000 deductible and the following coverage limits:

  • $300,000 in dwelling coverage.

  • $30,000 in other structures coverage.

  • $150,000 in personal property coverage.

  • $60,000 in loss of use coverage.

  • $300,000 in liability coverage.

  • $1,000 in medical payments coverage.

These are sample rates generated through Quadrant Information Services. Your own rates will be different.

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