June 4, 2012

How to Buy Insurance for Your New Car

By Mark Henricks, InsWeb.com

What with choosing options, haggling over price and setting up financing, the process of buying a car may seem endless. Yet before driving off the lot, the owner of a new car must make sure of one more thing: insurance.

Unlike a navigation system or DVD player, auto insurance normally is not option, according to Jeremy Bowler, senior director of the insurance practice at market research giant J.D. Power and Associates. Every state except New Hampshire requires motorists to carry basic liability insurance. Before heading home from a dealership, nearly every U.S. driver must show an insurance card or other proof of insurance, or buy coverage at the dealership.

Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute, says that if you buy a car with a loan from a bank or credit union, the lender requires optional comprehensive and collision coverage in addition to the mandatory liability coverage.

A driver should contact his or her auto insurance agent or company as soon as possible -- ideally before the car purchase is wrapped up -- with information about the new wheels. The key data: the unique 20-digit vehicle identification number (VIN), which is on a small metal plaque on the dash. The VIN can be seen by looking through the windshield from the outside. It also should appear on documents such as the title.

Even if a driver informs an insurer about the type of car being purchased, the resulting quote may be adjusted based on the VIN, according to Phyllis Byrne, underwriting director at CURE Auto Insurance in New Jersey. “The VIN gives you the air bag information, the anti-theft information, whether there’s an ignition cutoff, and information on the model and the size of the engine,” Byrne says.

This information is used to decide on appropriate coverage and costs.

The safest approach is to buy the car and inform the agent of the VIN, but delay delivery of the car for a day to allow time for the new policy to be established, Bowler says. However, insurance companies offer grace periods when coverage remains in force if forgetfulness or another reason prevents a driver from informing the insurer before or soon after a purchase. The grace period could be up to 30 days, but many insurers offer shorter grace periods.

Despite the grace period, it’s best to act promptly. “Unless the new vehicle is radically different than the old vehicle (such as a Toyota Prius being traded in for a Lamborghini Spyder), the switch should be easy and seamless,” says Phil Reed, senior consumer advice editor at automotive website Edmunds.com.

However, the new coverage may be different in its features, its price or both. A more costly car, for instance, likely will cost more to insure. A model with a history of accidents may be hit with higher premiums.

On the flip side, trading a sporty convertible for a less accident-prone minivan may reduce your premiums. If a new car boasts numerous safety features, such as anti-lock brakes, that may result in lower premiums as well.

New car buyers may want different coverage on a different vehicle, and that also could affect premiums. For instance, Worters says, some buyers want lower deductibles on new cars, because they’re more likely to want to fix scratches and dents.

Ron Moore, senior product manager at Met Life Auto & Home, suggests new car buyers consider replacement-cost coverage, which protects your car if it's stolen or totaled.

In the case of leased cars, he suggests GAP (guaranteed auto protection) coverage. “GAP coverage will cover the difference between the value of the leased vehicle and the amount owed on the lease if the vehicle is ever totaled in an accident,” Moore says. GAP also is sold for cars bought with loans, but it's used much less often than replacement-cost coverage.

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