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UPDATED: Mar 13, 2020
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Buying a new car requires more than just money. Not only do you have to have the capital to buy the car, you also have to have the funds that you need to maintain the vehicle and keep it insured. Since you legally have to carry insurance as a vehicle owner, finding a vehicle that you can afford to insure is crucial for the sake of your financial protection and the sake of the law.
If you’re going to buy a new car, planning every step of the way can certainly help you avoid speed bumps. You might not be able to plan for it all, but shopping for insurance coverage is something that you should always do when you’re setting a budget. You can’t activate your coverage before you even visit the dealer, but timing your purchase right is a must. Here’s when you need to have insurance on your new car:
Research Compulsory Insurance Laws Before You Become a Vehicle Owner
If you’re newly licensed or you’ve just never owned your own car, there’s a good chance that you’re not familiar with compulsory insurance laws in you state. Insurance is one of those products that a majority of people in the United States will purchase but most high schools don’t teach students about finances or insurance laws.
It’s your duty as a licensed driver and the legal owner of a vehicle to know whether or not insurance is mandatory in your state. It’s your job to comply with the legislation that’s in place in the state where the car is going to be registered. If you transfer your license plates to another state, you will then have to transfer your insurance so that it satisfies the new state’s laws.
When do you insure a new vehicle?
You now know that you have to insure a car that you own, but when exactly do you need to buy coverage? After all, the state can’t expect you to secure coverage within minutes of completing a financial transaction right? It might seem unreasonable, but it’s your duty to insure a new car as soon as you’re legally liable for it.
You become the legal owner of the vehicle as soon as you sign a sales agreement that says how much you’ve agreed to pay for the car. When you hand over money, it makes your sales contract official. This is called consideration. You can’t wait until you get your registration in the mail or until you make your first loan payment until you decide to comply with the law.
The Dealer Requires You To Show You Have Insurance
You can’t just take the risk of driving off without insurance if you’re buying the car from a dealer. Dealers have a duty to collect proof from you that you’re insured before they can give you your keys. Since the dealer is the one that’s processing your license plate application for you, they must submit your liability insurance card with your application.
If you’re just buying insurance while you’re in the office, you’ll need the company to email you or fax over the proof to finish the transaction. If the dealer isn’t asking for proof, don’t assume that you’re in the clear. The state will still verify whether or not your coverage satisfies the mandatory insurance laws after the paperwork is processed.
Dealers May Ask to See Coverage Options on the Policy
If you’re lucky enough to pay for your car in cash, you don’t have to worry about securing full coverage. Only buyers who finance their cars or lease them must show the dealer they have comprehensive and collision on their policy. Since carrying physical damage coverage is a requirement under your lending agreement, you need to be able to show that the vehicle has protection before you can drive it.
Do you need to show insurance when you’re buying a car from a private seller?
If you decide that you want to skip the dealer lot and buy your car from a private party, you should treat the transaction just like you would if you were talking to a salesman at a dealership. You should negotiate price and secure coverage as soon as you sign the bill of sale.
The seller can’t quire you to show proof of coverage, but you should check to make sure that they have proper liability insurance to cover you as a permissive driver before you go on any test drive.
Does having existing auto insurance make complying with the law easier?
You have to buy auto insurance coverage when you’re in the sales office or in the seller’s driveway if you don’t already have your own policy. If you do own a car and you have your own policy in force, satisfying the law is much easier than you might think. That’s because your existing coverage will cover a newly acquired vehicle for 14 to 30 days.
You should never buy a new car and drive it without insurance. If you have existing insurance, you need to make sure you have sufficient limits to extend to the car that you’ve purchased.
For policyholders who don’t have enough coverage, it’s wise to start shopping around for a new policy with low rates. Use an online insurance comparison tool like the one at the bottom of this page and you can see how much premiums will cost on the car that you’re interested in buying.