Auto Insurance For New Vehicles: Choosing The Right Coverage

When buying a new car, it is essential to get the right auto insurance coverage. While the specifics of auto insurance policies vary, there are some standard types of coverage to consider. These include liability insurance, which covers bodily injury and property damage, and uninsured/underinsured motorist coverage, which protects you if you are in an accident with a driver who does not have sufficient insurance. Depending on your state, you may also be required to have personal injury protection or medical payments coverage. If your car is leased or financed, you will likely need to add collision and comprehensive coverage, which protect your vehicle in the event of an accident or damage. Additionally, consider optional coverages such as gap insurance, new car replacement insurance, and rental reimbursement insurance. To get the best rates, it is recommended to compare quotes from multiple insurance providers and choose a policy that fits your budget and coverage needs.

Liability insurance

Bodily Injury Liability Coverage

This component of liability insurance takes care of the medical expenses of individuals injured in a traffic accident caused by you. It covers medical bills, pain and suffering, lost wages, and even funeral costs. It's important to note that this coverage applies to injuries sustained by others and not yourself or your family members.

Property Damage Liability Coverage

Property damage liability coverage comes into effect when you cause damage to someone else's property, such as their vehicle, fences, buildings, or government infrastructure like guardrails and road signs. It may also cover the cost of repairing or replacing the other driver's vehicle and compensate for damage to personal belongings.

Understanding Liability Limits

Legal Requirements and Necessity

Nearly every state in the US requires some form of liability insurance for drivers. Only specific parts of Alaska and Virginia are exempt from this requirement. The minimum coverage limits vary from state to state, and it is essential to understand your state's specific requirements. Liability insurance is crucial because it helps protect your assets in the event of a lawsuit resulting from an accident.

Cost of Liability Insurance

The cost of liability insurance varies depending on factors such as your age, driving record, the type of vehicle, and your state of residence. On average, the cost of minimum car insurance, which typically includes liability coverage, is $497 per year. However, this amount can increase if you have an at-fault accident or violations on your record.

Collision insurance

Most lenders require collision insurance if you finance or lease your car. Collision insurance might be worth considering if repairing or replacing your car after a crash would be financially challenging. While collision coverage is optional if your car is paid off, it can provide peace of mind if you drive an expensive car or are concerned about the cost of repairs.

The cost of collision insurance varies depending on factors such as the car's make and model, your age, driving record, and credit score. It is typically more expensive to insure a new car than an older one due to its higher value and the cost of repairs. When deciding on collision insurance, it is essential to weigh the potential insurance payout against the deductible, as higher deductibles can lower your premium.

In summary, collision insurance is a valuable coverage option, especially if you have a lease or loan, to protect yourself from the financial burden of repairing or replacing your vehicle after a collision.

Comprehensive insurance

When deciding on comprehensive insurance, consider the value of your car, your financial circumstances, and your personal preferences. If your car has a high cash value or you cannot afford to repair or replace it out of pocket, comprehensive insurance is a smart choice. However, if your car is older and has a low value, comprehensive insurance may not be worth the additional cost.

The cost of comprehensive insurance varies depending on factors such as your age, driving record, vehicle, state, and deductible amount. According to the National Association of Insurance Commissioners, the average annual comprehensive insurance premium in the US in 2019 was $171.87, with prices ranging from $96.53 in California to $347.61 in South Dakota.

Gap insurance

For example, imagine you've purchased a car for $30,000 and financed it with a loan. A year later, the car is in an accident, and your insurance company determines its current market value to be $22,000 due to depreciation. However, you still owe $28,000 on your loan. In this case, gap insurance would cover the $6,000 difference between your remaining loan balance and the insurance payout.

When considering gap insurance, it's essential to understand what is not covered. Gap insurance typically does not cover vehicle repair costs, the cost of a rental car while your car is being repaired, or damage to someone else's property. Additionally, gap insurance does not cover engine failure or other repairs.

To qualify for gap insurance, you must have comprehensive and collision coverage on your policy. Comprehensive coverage protects against theft and damage caused by incidents other than a collision, such as fire, flood, vandalism, or hail. On the other hand, collision coverage reimburses you for damage to your car resulting from a collision with another vehicle or object, such as a tree or guardrail.

The cost of gap insurance varies by insurer, and it is typically purchased for a specific period, such as the duration of your car loan. Once you no longer owe more than the car is worth, you can drop the insurance coverage.

New car replacement insurance

Some vehicles depreciate faster than others. If you purchase a luxury, electric, or other specialty vehicle, new car replacement coverage might be more valuable to you in the event your car is totalled within the first year of ownership. Another thing to consider is whether you'd be comfortable paying out of pocket for the difference between your vehicle's depreciated value and the cost of a brand-new version. If not, new car replacement insurance might be worth the extra cost for the added peace of mind.

The cost of new car replacement insurance depends on factors such as your new car's purchase price, where you live, and other considerations. To get an accurate quote, you can contact insurance providers directly or use online tools to compare rates from multiple insurers.

Frequently asked questions