New car shopping? Check auto insurance costs before you buy
These are happy times for auto dealers. In August, U.S. auto makers recorded their best sales month in nearly five years. If you are planning on trading in or trading up, it’s a good idea to call your insurance representative to get a quote to learn if the upgrade affects your insurance coverage.
Car dealers require proof of insurance before they allow a vehicle to leave the lot. And, you’re not required to contact your insurer before you make a new car purchase because you’ll have temporary coverage under your current auto insurance policy. Temporary could be a few weeks or as much as 30 days, depending on the insurance company. But the bigger concern is that whatever coverage you had on the old car is what temporarily transfers to the new car – and you want to be confident it’s what you need.
To get a car loan, banks require you to have Collision and Comprehensive coverage on the vehicle, Collision covers damage that results from a car crash; Comprehensive covers nearly everything else, such as damage from fire, flooding and theft. If you had a clunker and did not have this coverage, you’ll have to add it to secure a loan.
Here’s something else you need if you have a car loan or if you lease a car: Gap insurance. This is insurance to fill the gap between what the car is worth and what you owe on the car loan. The dealer may offer to sell you this coverage, but here’s a money-saving tip: You’ll save money buying it from your own insurer. That’s another reason to call your insurer before you buy a new car.
The minute a new car leaves the lot it starts to depreciate. Really. According to Edmunds, a provider of auto data, in one minute the average-priced car depreciates about 9 percent. After a year, that car can depreciate about 20 percent. Sure, it’s still new to you after 12 months, but it’s a used car to everyone else! Because auto insurance covers the car’s current value, you might have out-of-pocket costs if the car were totaled and the balance on the car loan is more than what the car is worth. That’s why gap insurance is a smart buy – for an additional annual cost that is less than a tank of gas.