Tips For First-Time Car Insurance Buyers

Having a car has long been associated with a sense of liberation and limitless possibility. Numerous novels, songs, and films have romanticized the open road. You can almost imagine yourself cranking up the radio and driving off into a technicolor horizon. The credits begin to roll.

But, for all the exciting adventures you have planned, car ownership comes with some practical advice: great driving comes with great financial responsibility.

We're talking about car insurance, of course. Finding the right car insurance can be a daunting task, whether you're buying your first car or your parents tell you it's time to get your own policy. The journey, on the other hand, isn't all that bad. With a little planning, you can get a good policy with the right coverage types at a reasonable price.

Car Insurance Is a Good Way to Show “Financial Responsibility”

Every state has some form of "financial responsibility" law, which means that if you own a vehicle, you must demonstrate that you have the financial means to compensate others if you cause a car accident. You'll need proof that you can pay for other people's car repairs and medical bills.

The majority of people comply with financial responsibility laws by purchasing car insurance. It's usually the cheapest and simplest way to drive legally.

You can also purchase collision and comprehensive insurance to protect your vehicle against damage caused by car accidents, theft, floods, fire, hail, collisions with animals, and falling objects.

Depending on your state, here are two other ways to comply with financial responsibility laws:

  • Self-insurance. Self-insurance can also be expensive. In New Jersey, for example, if you're required to post a surety bond, it must be for at least $300,000 and $10,000 for each additional vehicle (up to $1,000,000).
  • Making a deposit or posting a bond with the state. This, like self-insurance, can be an expensive option. In California, for example, you must post a $35,000 cash or surety bond with the DMV, whereas in Texas, you must post a $55,000 cash or securities bond. In some states, posting a bond or deposit is not permitted.

How Much Is Car Insurance?

According to the most recent data from the National Association of Insurance Commissioners, the average cost of car insurance with liability, collision, and comprehensive coverage is $1,134 nationwide.

  • Liability Insurance-$611.12
  • Collision Insurance-$363.08
  • Comprehensive Insurance-$159.72

Shop For Car Insurance Before You Go to the Dealership

It's a good idea to look for car insurance before you buy a car, or you might not be able to drive your new car off the lot.

Before you can drive the car home, you'll need to show proof of insurance. What you can do ahead of time is as follows:

  • Have a specific make and model in mind. You've probably determined what types of cars you're interested in while car shopping. For example, you might want to test drive a brand new Toyota Camry or a used Honda Civic. An insurance agent can provide you with quotes for a few different models, allowing you to budget accordingly.
  • Compare car insurance quotes from various companies. An independent insurance agent or an online car insurance comparison site is a quick and easy way to compare prices. Rates vary greatly between insurers, so you should get more than one or two quotes.
  • Determine the types of coverage you'll require. The majority of states require you to have car liability insurance. Furthermore, if you're getting a car loan or leasing, your lender or leasing agent will almost certainly require collision and comprehensive insurance.
  • Set up a policy with your insurance agent. This part is simple if you already have a car in mind and know the vehicle identification number (VIN). You can have your insurance policy ready to go before you even arrive at the dealership. If you don't yet have the VIN, ask the agent if he or she can set up a policy using the information you do have, such as the drivers in your household and the address where you'll keep the vehicle. Once you've decided on a vehicle, contact an agent and provide the VIN to complete the purchase of a car insurance policy.

Can I Buy Car Insurance at the Dealership?

You might be able to purchase car insurance from the dealership. For example, if you finance your car at a dealership and are required to have collision and comprehensive insurance, the financier may offer to obtain insurance on your behalf. While this may appear to be convenient, it is not a good way to get the best deal on car insurance.

The financier or car dealership may only be able to work with one or two car insurance companies. You'll be able to research and compare quotes from several different insurers if you shop around ahead of time. Obtaining quotes in advance will save you time and money at the dealership.

Another thing to be cautious of at the dealership: A proposal for gap insurance.

If your car is totaled in an accident, gap insurance will pay the difference between the insurance check and the amount owed on your car loan. It's a good way to account for the depreciation of the vehicle. However, it is frequently less expensive to purchase it from your insurance company rather than from a dealership.

Gap insurance can range between $400 and $900 when purchased from a dealership or lending company, and it is frequently rolled into your auto loan. When you purchase gap insurance through your insurance company, the cost is typically between 5% and 7% of your collision and comprehensive coverage premium, which works out to about $15 to $42 per year.

Another benefit of purchasing gap insurance through your insurance company is that you can cancel the coverage when the value of your vehicle is equal to or greater than the amount owed on your car loan. If you buy it from a dealer, you'll be stuck with gap insurance until you've paid off your loan.

You Will Pay More For Car Insurance As a First-Time Buyer

You can expect to pay more if you are a new driver and/or purchasing your first car insurance policy than an experienced driver who has had insurance for several years. This is because car insurance companies consider driving and insurance history when determining auto insurance rates. The less experience you have behind the wheel, the more likely you are to file a car insurance claim.

Other pricing factors that insurance companies typically consider include:

  • Type of car
  • Age
  • Gender
  • ZIP code
  • Marital status
  • Credit
  • Education and occupation

Your Parents’ Car Insurance Might Not Be the Best For You

Your parents may have had their car insurance with the same company for decades, but that doesn't mean it's the best fit for you. Car insurance is priced individually based on several of the above-mentioned pricing factors. Even if your parents believe they are getting good rates, this may not be the case for you.

Shopping around and comparing quotes from various companies is your best bet.