Brand New Car? Brand New Insurance?
Legally, you do not need car insurance to buy a car. However, if you intend to drive your new car then you will need car insurance. Car dealerships in every state (except New Hampshire) will not allow you to drive your freshly purchased car off their lot without insurance. The vast majority of Americans (over 85%) finance new vehicle purchases. Most dealerships have a finance manager to go over loan options. The finance manager and the dealership have a vested interest with the lienholder (the name you will see on your vehicle registration) confirming you properly insure the car. On the purchase contract agreement, the lienholder will require collision and comprehensive coverage on your car insurance throughout the duration of the loan.
Collision coverage is typically the most expensive line of coverage on a car insurance policy as it covers the car if it’s damaged in an accident with another vehicle regardless of fault or with a stationary object, such as a fence or a tree. Comprehensive coverage is oftentimes overlooked despite being inexpensive as it is often referred to as “bad luck insurance”. It covers incidents out of your control as such: hail, flood, falling objects (a tree branch snapping off the tree and landing on your hood), glass only damage (a rock hits your windshield causing a large crack), theft, and vandalism. The lienholder will also request a maximum of $1,000 deductible on collision and comprehensive lines of coverage. A deductible is the portion you will pay. In many ways, in car insurance terms a deductible means the same thing as a co-pay for health insurance. These requirements will be on the purchase contract agreement and will require a signature next to each line of coverage.
If you are planning on purchasing the car 100% cash (congrats!), the dealership will still likely want to confirm insurance is established before handing you the keys. The dealership could be considered liable if a severe event took place as you drive off the lot. They need to make sure you protecting yourself and more so others with liability insurance before you leave their property. Just like a bartender could be liable for allowing a severely intoxicated individual to leave their establishment and causing an accident on the drive home.
Buying Private Party?
Purchasing a used vehicle from a private party vs a dealership is usually cheaper since a private seller doesn’t have fixed business costs to cover. And since the seller doesn’t run a business, the insurance requirements will fall strictly on you. Purchasing collision and comprehensive coverage are optional if there is no lienholder. However, drivers are required by law to carry liability car insurance in every state (except New Hampshire). Liability car insurance covers you and your assets if you are liable for causing an accident.
Liability car Insurance includes two lines of coverage: bodily injury and property damage. Bodily injury coverage helps pay for medical expenses if you’re at fault for an accident that injures another party. Property damage coverage pays to repair or replace the other party’s vehicle, valuables, and/or property damaged in the accident you cause. Liability car insurance only applies if you are at fault for the accident.
Adding a new vehicle to an existing car insurance policy is quite easy and most insurance carriers allow a 15-30 day grace period. Meaning, if you purchased a new car on a Saturday and had an accident 24 hours later on Sunday, your insurance carrier will carry over the insurance coverages on your old or other cars on the policy to protect you. It is highly recommended to contact your insurance agent to go over the proper lines of coverages and limits to protect yourself and others.