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How much insurance coverage do I need for a new car?

Here's what you need to know...
  • Each state requires a minimum liability insurance, but the recommended limits are higher
  • Gap insurance is a coverage options you should consider
  • There are consequences for not having enough coverage
  • You can save money on your policy several different ways

Getting a new car is typically an important and exciting event in one’s life. However, this is accompanied by the financial responsibility of making sure it is properly insured by a reputable auto insurance company.

This is to protect your investment and the lender if you do not already own the vehicle.

The type of coverage and the amount needed is based on several factors, such as the following:

  • whether the vehicle is financed or leased
  • the value of the car
  • the age of the policyholder

We will further discuss in this article what determines the amount of coverage needed for a new car.

Remember to get your free car insurance quotes by entering your zip in the box above!

Minimal Coverage

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Almost every U.S. state requires their drivers to carry a basic auto insurance policy of liability coverage. This will include bodily injury and property damage for the other driver.

Although states may set a minimal required amount, you may want to consider purchasing a higher limit when comparing quotes.

In the event of a serious accident, there is no guarantee that your minimal liability insurance policy will cover the entire cost. You will end up paying out of pocket for the remaining amount.

According to the Insurance Information Institute some states may also require Medical Payments or Personal Injury Protection (PIP).

This covers medical expenses for injured passengers and/or lost wages from being unable to work. Uninsured Motorist Coverage may also be required. This covers costs related to hit and run incidents or accidents caused by uninsured drivers.

The Department of Motor Vehicles states that you typically will not be required to carry more than $100,000 for bodily injury liability and $25,000 for property damage per accident.

However, insurance companies encourage purchasing at least $300,000 for bodily and $100,000 for property damage. The amount required will be related to the value of your assets.

If you own a brand new vehicle, it is highly advised to add collision and comprehensive coverage to your policy to protect your asset.

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Coverage Needed for a Leased or Financed Car

Insuring a leased vehicle may be more expensive. Many auto dealers will not allow you to drive the car off of the lot unless you show proof of the required insurance coverage.

If a lender owns the vehicle, you are typically required to purchase both collision and comprehensive coverage in addition to the liability coverage mandated by your state.

The comp and collision coverage protects the bank or auto dealer from financial loss in the event of an auto accident or natural disaster.

The minimum amount of collision and comprehensive coverage required depends on the market value of the car and the cost associated with repairing it.

As stated previously, the cost will vary based on several factors, such as the age and experience of the driver, the location of the car, the number of people on the policy, etc.

Considering your own personal driving habits, you may want to consider purchasing higher limits than what is required.

If you have a tendency to drive fast or have issues with parking or maneuverability, you may want to consider more coverage. If you have issues driving in certain weather conditions such as snow or rain, you may want more coverage.

Understanding Gap Insurance

AdobeStock_30205775-1600x1600If your car is totaled and its cash value becomes lower than the remaining balance of the loan, a standard insurance policy will not compensate for the difference.

Gap insurance is useful because it will cover the difference between the actual cash value of the vehicle and the auto loan.

Owing more to the lender than the actual cash value of the car can occur in several ways:

  • having an extensive loan term
  • excessive mileage on the car
  • having a small down payment

When comparing gap insurance quotes, it is important to consider more than just price. Different companies have varying terms and conditions with their gap coverage and it is important to fully understand the policy.

Consequences of Not Having Enough Coverage

Not having the appropriate coverage for your situation can come with a hefty price tag. If the amount of the property and injury damages from an auto accident exceed your policy limits, you would be responsible for the remaining amount.

The other driver could file a lawsuit against you. If you do not have enough money to pay, your assets could be rightfully taken from you.

Penalties for driving without insurance could cause the following:

  • driver’s license suspended
  • required to carry an SR-22
  • insurance premiums increase

It is safe to say that the risk is extremely high for not carrying proper car insurance and should be avoided completely.

If your full coverage insurance lapses for a financed vehicle, the insurance company may notify your lender. The lender can then implement “forced-placed insurance” which means they obtain a policy on their own and then charge you for it later at a more expensive price.

Ways to Save Money with Your Policy

photo-1459257831348-f0cdd359235f-1600x1600It is a general rule of thumb that the more expensive the car,the higher the insurance. This is especially true when financing a new car. A vehicle that has a high safety rating may be much cheaper to insure than a luxury or sports car.

To save money on your insurance policy The Insurance Information Institute recommends comparing multiple car insurance quotes that have the same amount of coverage and choose policies with higher deductibles.

You may also want to contact insurance companies directly and ask if they offer discounts for drivers with clean driving records.

Regarding younger drivers, consider placing them on a family policy and on the oldest car. This will be cheaper than placing them on a policy by themselves.

In Conclusion

You should always purchase your next car with regards to insurance costs. Your lender may require a certain amount a coverage for their vehicle as well.

The amount of coverage that you will need is associated with multiple different factors that can be further discussed with a qualified insurance professional that can evaluate your situation.

It is important to make sure all insurance payments are promptly paid to prevent lapses in coverage as well.

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