Is there automatic insurance coverage for new cars?

Generally, you have automatic insurance coverage for a new car if you already have an existing insurance policy. This will be limited coverage, and the automatic insurance coverage for your new car will not update automatically, so you will need to contact your provider to update your policy to match your new car. Your provider may give you a new car insurance grace period of up to 30 days to purchase proper coverage, but this grace period varies depending on the car insurance company you have.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 22, 2021

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Here's what you need to know...

  • Every insurance provider is different, and you should check with yours to find out how they handle new vehicle purchases.
  • Generally, your new car will have the same coverage that the most protected car you own carries – for a limited time.
  • Be prepared with quotes from different insurers before you step onto the car lot.

Buying a new car requires a lot of preparation. If you are ready to own a reliable vehicle, you will need to set a budget.

Once you have a strict budget and a pre-approval for a loan, you can finally begin to shop for a car until you find the one that feels just right. Once you get past the negotiations on the winning end, you are just steps away from receiving the keys.

Before you will be allowed to drive off of the sales lot with your new purchase you are required to show the finance department that you have active auto insurance that will cover the new vehicle.

Read more to learn when you do and when you do not have automatic insurance coverage for your new car.

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How are new purchases covered on your car insurance?

You do have automatic coverage on newly purchased vehicles when you have an existing insurance policy.

While you do have existing coverage, you might not have as much coverage as you might assume if you have traded in an old beater or you are just a named driver on a policy with vehicles that you do not own.

You should take the time to learn how the terms of your policy are written out in regards to newly acquired autos before you even make the trip to the dealer.

Here are the questions you must ask as you review your insurance policy to determine how your newly acquired car will be covered:

— Do I have full coverage on the covered cars on the policy?

The vehicles that are listed on your personal auto insurance policy are referred to in the industry as covered autos.

These covered autos have their own forms of coverage, limits, and deductibles.

Almost all auto carriers in the United States that cover private passengers cars have terms in the policy that say they will cover a newly acquired vehicle for a stated period of time.

The coverage that automatically extends to the newly purchased car will be the broadest form of coverage that is listed on the policy.

If one of the vehicles has comprehensive and collision protection, the new auto will receive the same coverage automatically.

— How long is the new car covered for physical damage losses?

The period of time that the broad physical damage coverage extends will be extremely limited. While some companies offer coverage for a longer period of time than others, the industry standard is 14 days.

You should check with your agent to see how your policy handles automatic coverage. Your company may give you as long as 30 days to contact them and add the car.

If you do not add the car within the allotted automatic coverage time frame, coverage will not apply until the date that the car is added by the registered owner.

If you do have a loss that results in damage after the automatic period is up and before the car is added, there will be no coverage.

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— What happens if you only carry liability?

By now, you are familiar with the fact that your physical damage coverage will automatically cover your new vehicle, but what happens if you do not have physical damage coverage?

Since the comprehensive and collision are both optional, it is possible that you might not carry damage coverage at all.

If you have a basic car insurance policy, only the liability coverage will protect you as you rev your engines. Your uninsured motorist and medical payment coverage will also provide protection for your medical bills if you suffer a loss since they follow the driver.

Driving off with a liability-only policy can be dangerous.

Some policies will provide just 3 days of comprehensive and collision cover for a newly acquired car when other listed cars are not carrying full coverage. You should verify this before you rely on that coverage to protect you.

If your older junk vehicle did not have full coverage and you make some reckless assumptions, you could be on-the-hook for damages to the car and payments to the financier.

— Are you covered automatically if you do not have existing insurance?

Not all car buyers are lucky enough to have existing insurance.

If you are not trading in a vehicle or you are buying your first car, you will need to do extra preparation before you start to speak with salesmen.

You do not need car insurance to test drive vehicles when you are at a commercial car dealership but you may with a private seller.

While insurance is not necessary for test drives, it is necessary for final trips off the lot once the ownership has been transferred.

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Steps to Take Before You Go to a Car Lot

If you do not want to experience delays after the sales and finance contracts are signed, go to the dealership prepared.

Here are the steps prepped buyers will take in the days leading up to a purchase:

  • Decide on a vehicle style
  • Request insurance quotes for various makes and models
  • Print the quotes and decide which insurer is best
  • Have quotes saved in the insurer’s system for easy binding
  • Contact the insurer with vehicle information and bind over the phone

If you want to price the cost of insurance quickly, you can use an online rate comparison system.

After this, you can save the quotes and access them from a mobile device or by phone after you decide on a car. Using these systems will help you get the immediate cover you need if it is not automatic.

Compare car insurance rates now by using our FREE tool below!

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