Purchasing a car (whether new or used) can be exhilarating. There are many factors to be considered to ensure you get the best vehicle at your convenience. Some factors include safety features, mileage, upgrades, car make and model, car on lease or loan, and the price of the insurance policy. The more features added or upgraded to the vehicle, the more it will impact the cost of the car. So, understanding which add-ons are mandatory and suitable according to your needs is essential. In such a case, you may wonder if you need insurance to buy a car?!
In almost every state, the person who owns a registered vehicle is compelled to carry car insurance. New Hampshire and Virginia are the only states where purchasing an insurance premium is not vital. Instead, they require some other forms for verifying your financial responsibility.
Do You Need Insurance to Buy a Car?
If you’re wondering if you need insurance to buy a car, the short and crisp answer would be yes. Although, you don’t obligatorily need auto insurance before the transaction happens. It would only be suggested to buy insurance once and if you know the preferred car model you purchase.
Even when you request car insurance, the company requires vehicle-specific information like the VIN and mileage. You may also be required to show proof of insurance before legally driving the car off the lot. Without an active insurance policy, you can’t take proprietary rights to the car, even if you pay cash.
Why You Need Insurance to Buy a Car?
Car insurance is intended to safeguard you financially if you get caught up in an accident with correlated injuries or vehicle damage. Therefore, it’s essential to figure out the right amount of coverage required to be fully protected.
All states have varied legal requirements for carrying a car insurance policy. All drivers are asked to hold at least the minimum amount of insurance coverage before driving their cars on public roads. It’s better to check with your local authorities or insurance provider to find specific insurance limits required in your area. Here are some key reasons why you need insurance to buy a car:
- It provides financial protection to the drivers in case of unforeseen events that damage their own or others’ properties. It lowers the financial burden on drivers to fulfill the cost of damage or injuries out of their pocket.
- Even if you are financing a car on a loan or a lease, the lender will advise you to get comprehensive or collision coverage and state minimum liability coverage. It aims to safeguard the car by covering costs related to repairs in case of damage, along with totaled, stolen, or replacement of the vehicle.
- Car insurance also covers other factors like the PIP (Personal Injury Protection). It aids by covering the costs of hospital visits & surgery. The coverage pays for your medical bills after an accident, and sometimes fills in the gaps in your health insurance policy too.
Types of Car Insurance Coverage
Depending on the state/area you live in, the legally required insurance coverage varies. So, whenever you plan to purchase a car, you’ll more likely be prescribed to carry the coverages mentioned below.
This kind of insurance covers the damage to your car that does not result from an accident/collision. While it is optional to add to your insurance policy, it is mandated if your car is being financed. It includes scenarios such as when your car is stolen, vandalized, damaged, and incurred outside of collisions.
This helps you pay for the repairs to your vehicle whether or not you’re at fault in an accident or, by chance hitting any stationary objects like poles. This coverage type is optional if you own the vehicle. However, if your car is being financed, bought on a lease, or has a loan to repay, your lender may ask you to opt for active collision insurance on your policy.
Bodily Injury Liability
This type of coverage is generally mandatory in almost every state. In case you are responsible for an at-fault accident, then bodily injury liability coverage will help you by paying for the other party’s medical expenses. Typically, this coverage is distributed in a per-person, per-accident basis strategy.
Property Damage Liability
Typically mandated in every state, in an at-fault accident, property damage liability coverage aids you to pay for the damage caused by you to someone else’s property.
Additional Coverage Options
Most car insurance companies offer some additional coverage options to the policyholders. They might not be mandatory to carry as per the state law but are advisable. They are designed per the policyholders’ convenience to fit their unique needs. These add-on coverage options include:
New Car Replacement Coverage
Sometimes when you drive your new car out of the dealership, it deteriorates in value. Hence, some companies offer new car replacement coverage as financial protection. It assures that they’ll pay the replacement cash value of the car instead of the actual cash value.
Gap Insurance Coverage
Gap insurance coverage seeks to cover the gap between the amount you owe on your new car financing with the total value it carries in cash. This scenario is suitable for those whose vehicle is totaled, stolen, or unrecoverable. You don’t have to pay the difference out of pocket to pay off the loan in such a scenario.
Uninsured & Underinsured Motorist Coverage
These coverages pay for your injuries and property damage if you get hit by a driver who doesn’t have car insurance or doesn’t have enough insurance to cover your damages/injuries.
also know about: What’s the best time to buy a TV
How Much Car Insurance Do I Need?
The right amount of auto insurance coverage depends on your needs, budgets, and state requirements. However, some factors must be considered when choosing the coverage. It includes:
- Type of coverage and minimum limits required by your state to drive legally.
- Optional and mandatory minimum insurance coverage policy by the state.
- Whether you’ve paid the total amount of your car, or is it on lease or loan?
- Does your lienholder have any coverage requirements?
- How much can you pay out of pocket at any given time?
- Your vehicle’s current worth.
- Usually, almost every state requires liability insurance if it is paid in full or sometimes financed, but you can opt for additional protection coverage.
To ensure that damage to your car will be covered appropriately, you must balance liability, whole coverage policies, and comprehensive and collision insurance.
What Happens If You Get Caught Driving Without Insurance?
It’s never a good idea to drive a vehicle without insurance if your state has some minimum insurance coverage policy. It is considered a serious offense that can leave you open to various consequences. If caught, you could face hefty fines, license suspension or suspension of your vehicle’s registration, or even jail time, depending upon your state’s law.
See also about: 12 personal finance books you must read in 2021
If you still wonder if you need insurance to buy a car, this blog provided all the details required to resolve your queries. In the absence of insurance, you won’t be eligible for any financial support if you get involved in an accident (whether at fault or not). In such a scenario, you become solely responsible for the damages or injuries. If you are not able to pay for the damages, you could face serious consequences, including the seizing of possessions and court cases. Therefore, it is advised to get auto insurance after purchasing a car.