Tamara E. Holmes
Many factors go into buying a new car, such as the car’s features, its reputation and, of course, the price. Another factor that you’ll need to consider is car insurance, since how much you pay for coverage ultimately determine how much money you’ll be forking over for your new wheels.
Before you head to the car dealer, here’s what you need to know about car insurance.
1. Shop for insurance first.
A lender won’t sign off on financing a car without proof of insurance, and a dealer won’t let you off the lot without coverage, so you need to have insurance in hand first.
If this is your first car – and your first time having car insurance – ask for referrals and get quotes from two or three insurers, and then pick one insurer before heading to the dealership, says Tully Lehman, a spokesman for the nonprofit Insurance Information Network of California. If you already have car insurance but aren’t happy with your insurer, decide which insurer you’d like to have cover your new car.
2. Consider insurance-friendly options.
When you’re thinking about options to add to your car, keep in mind that your insurer may offer discounts for certain features. For example, Erie Insurance gives discounts if policyholders have anti-lock brakes on all four wheels and anti-theft devices such as an alarm. Some car insurers also offer discounts for eco-friendly vehicles, which might give you a reason to buy that hybrid.
Not only should you consider the safety features, but also the safety record of the vehicle you’re buying, says Russ Rader, a spokesman for the nonprofit Insurance Institute for Highway Safety. Vehicles that have high crash rates or that are expensive to repair rack up larger losses for insurers, so they often cost more to insure. The Insurance Institute for Highway Safety tracks insurance losses by make and model at www.iihs.org/research/hldi/composite.
“When consumers choose vehicles that have lower insurance losses, that can translate into lower insurance premiums,” Rader says.
3. Tell your insurer about your new car.
If you are replacing a car and already have car insurance, your current policy may cover your new vehicle for a certain number of days before you notify them. For example, Progressive gives you 30 days to inform them that you’ve purchased a new car. If you fail to tell them in that time period your coverage will lapse.
Each insurer has its own set of rules when you’re keeping your old car and adding a second one; read your policy or check with your agent to find out how long you have to let your insurer know of your car purchase, and set a reminder for yourself so you don’t forget.
4. Ask for a new-car discount.
Discounts are a great way to save on car insurance, and some insurers offer savings on your premium simply because the car is new. For example, Travelers offers savings of up to 10 percent if the car is less than 3 years old. Likewise, Allstate offers up to 15 percent off, depending on the state you’re in and the model of the car you’re driving.
5. Adjust your coverage.
Don’t assume the insurance policy you had for your old car is a good fit for your new one. For example, it’s often recommended that owners of older vehicles drop comprehensive and collision coverage – optional insurance that covers damage to your vehicle – when the cost of the insurance exceeds the value of the car.
However, your new car will be worth more than your old one, so that rule most likely won’t apply and you may want to add comprehensive and collision coverage back to your policy. You also may be forced to adjust your policy. For example, if you take out a loan, your lender may require you to buy comprehensive and collision coverage.
6. Consider gap insurance.
Cars depreciate quickly. In fact, they lose value the minute you drive them off the dealer’s lot. If you finance the car, you’ll likely owe more to your lender than the car is worth. If you have an accident and your car is declared a total loss but you owe more than the car is worth, the insurance company may not give you money enough to cover your debt, says Russell Longcore, author of “Insurance Claim Secrets Revealed.”
Gap insurance is designed to help policyholders in this situation, as it will cover the difference between the cash value of the car, which the insurance company will pay out, and the amount you owe on the loan. As a result, you won’t be stuck making payments on a car that you no longer drive.