New Car Insurance: When You Need It and How to Get It

Although it may be possible to buy a car without insurance, most dealerships require that you have coverage for your new car before you can hit the road.

All states require car insurance except Virginia, where you can opt out of it by paying a $500 fee. There are also exceptions in remote parts of Alaska. But in all other states, you must show proof of insurance before you can start driving. To be legally insured, your car insurance policy must meet the minimum car insurance requirements in your state.

Here’s what you need to know before you buy insurance for a new car.

When do I need to buy insurance for my new car?

If you don’t currently have car insurance, you’ll need to buy a policy before you can drive your new car.

If you already have a policy, you can show your insurance card at the dealership as proof of coverage. This will allow you to buy a car, but you'll still need to contact your insurance carrier about your new purchase. Most insurers offer a grace period of seven to 30 days to inform them of a new vehicle.

However, even if you have coverage, it’s wise to tell your insurance company that you plan to get a new car before you buy. Since new vehicles are generally worth more than older cars, your new car insurance premium will probably be more expensive. You’ll want to factor the increased premium into your budget ahead of time.

Another reason to talk with your insurance company before buying your car? The dealership may try to upsell you on various insurance and other financial products, such as gap insurance. It’s a good idea to already have an insurance policy you feel confident about so you won't be persuaded to pay more for extras.

» MORE: Do I need auto insurance to buy a car?

How to get auto insurance before buying a car

If you don’t have car insurance, you’ll need to get a policy before you drive your new car. It might sound odd to buy insurance for a car you don’t own yet, but it’s pretty straightforward:

1. Know your make and model. Take some time to compare cars and identify the vehicle you want.

2. Gather information about your vehicle of choice. To buy an insurance policy, it can be helpful to know the vehicle make and model, vehicle identification number (VIN), mileage and your driving record. If you don’t know the VIN or mileage, you can tell your insurer the make, model and year of the car you plan to buy (such as a 2022 Toyota Camry).

3. Compare insurance quotes. It might be tempting to go with the first insurer you come across, but it can be worth it to shop around. Check out NerdWallet's car insurance comparison tool to compare rates from many of the country’s largest insurers.

4. Submit an application. Once you choose an insurance company, it's time to apply for your new car insurance policy. Depending on the insurer, you may be able to complete the application process online. However, if you don’t know the details of the car (like the VIN), you’ll be able to get a quote, but you won’t be able to finalize your purchase until you can provide this information.

5. Purchase your vehicle. Once you have proof of insurance, or a carrier willing to cover you, you’re all set to head to the dealership and buy your new car.

» MORE: How to get car insurance in 5 steps

How much is new car insurance?

New cars are worth more than older, used cars, plus they have extra features (like backup cameras and Bluetooth speakers) that make them more expensive to repair. It’s likely that your new car insurance premium will be more than your previous vehicle’s: Auto insurance rates are increasing across the country for most drivers.

The rate you’ll pay will depend on your car’s year and also on the make and model you choose. According to NerdWallet's analysis of the cheapest cars to insure, the median annual cost to insure the popular 2023 Toyota RAV4 is $1,652 for a good driver with good credit.

Here’s how much new car insurance costs for some of the most popular vehicles in the country, according to NerdWallet’s 2023 rates analysis, ranked from the cheapest to insure to the most expensive.

» MORE: Ranking the cheapest cars to insure

How much insurance do I need for a new car?

How much auto insurance you need will depend on a variety of factors, including how new your car is, if you have a car loan or lease, plus your state’s minimum requirements to legally drive. But NerdWallet also recommends purchasing enough coverage to protect yourself financially if you're in a bad crash.

Here's what to know.

State minimum car insurance requirements

Your new car insurance policy must meet your state’s minimum car insurance requirements. These requirements vary by state, but they tend to include the following types of coverage:

• Liability insurance pays for injuries or damage to others’ property after an accident you cause, up to your policy’s limits. Every state, except Virginia and remote areas of Alaska, requires a minimum amount of liability insurance.

• Uninsured and underinsured motorist coverage are required in nearly half of the states. These coverage types pay for your medical expenses or property damage if you’re in an accident caused by a driver without any car insurance or with minimal liability limits.

• Personal Injury Protection (PIP), sometimes called no-fault insurance, covers you and your passengers’ medical expenses after a crash, regardless of who caused the accident. PIP may also pay for lost wages from being unable to work due to injuries from a crash.

» MORE: How much liability car insurance do you need?

Full coverage insurance

If you have a car loan or lease, you're likely required to have full coverage car insurance. Full coverage isn't a type of insurance policy, but it instead refers to a combination of many different coverage types. Full coverage typically includes your state’s minimum requirements, plus:

• Comprehensive insurance, which covers damage to your car from things like fire, hail, vandalism and theft. Comprehensive insurance pays out up to the current market value of your car, minus your deductible. A car insurance deductible is a set amount subtracted from a claim payout.

• Collision insurance, which pays for damage to your car from crashes with objects or other vehicles. Collision insurance also pays out up to the market value of your car, minus your deductible.

Gap insurance

Gap insurance pays for the difference between the remaining balance of your car loan or lease and the current market value of your car if it’s totaled or stolen. Without gap insurance, you’d be responsible for paying that difference.

Gap insurance is a smart purchase that can save thousands of dollars in the event of a major accident that totals your new car. While it’s typically required if you lease, those who have a car loan should consider gap insurance as well.

Here’s how gap insurance works. Let’s say you owe $30,000 on your auto loan, but the market value of your car is $25,000. You have full coverage auto insurance, which includes comprehensive and collision coverage. If your car is totaled in a crash, your collision insurance would pay out up to the market value of your car, minus your collision deductible. If your collision deductible is $500, your insurance company would pay you $24,500. But you'd still be on the hook for the remaining $5,500 of your car loan.

Gap insurance would pay you $5,000, the difference between the remaining balance of your auto loan and your car's current market value, so you'd only be on the hook for your $500 collision coverage deductible. Without gap insurance, you would owe the lender the remaining amount.

» MORE: Car prices are rising. Gap insurance can help

New car replacement coverage

If a crash totals your new car, or if it's stolen, new car replacement insurance will pay to replace it with a vehicle of the same make, model and value.

If your new car is totaled in a covered incident, comprehensive and collision insurance will pay for the actual cash value of your vehicle, minus your deductible. However, because cars quickly lose their value after the time of purchase, your $30,000 car may only be worth $25,000 when you get into an accident.

Unlike comprehensive or collision insurance, which would pay only $25,000 minus your deductible, new car replacement coverage would pay for how much it costs to replace your vehicle with a new car of the same make and model minus your deductible.

How can I save on new car insurance?

The best way to make sure you get the best deal for your new car insurance policy is to shop around and compare quotes from multiple insurance companies. It’s also a good idea to shop around once a year and switch insurers if you find a more affordable option that still satisfies your coverage needs.

» MORE: Average cost of car insurance

Here are some ways you can lower your auto insurance bill:

• Increase your deductible. This is a guaranteed way to lower your rate, but only consider it if you know you can afford the higher amount if you need to file a claim.

• Bundle policies. You might save by combining your auto policy with another insurance policy under the same company, such as bundling home and auto insurance together.

• Ask about discounts. Insurers may offer discounts for things like having protective equipment in your car (like air bags or a burglar alarm), safe driving and taking safe driving courses. Military members and federal workers can often qualify for discounts, too.

• Build your credit. Many insurers use a credit-based insurance score to price rates, and drivers with poor credit tend to pay more for car insurance than those with good credit. You can build your credit by making on-time payments and keeping your credit card balances low. NerdWallet recommends staying under 10% of your total credit limit. Not all states allow insurers to use credit to price rates.