Whether your new car was an impulse buy or a necessity after your old one puttered to a sad, broken stop after 200,000 miles, there are some critical questions regarding your auto insurance. Will your insurance automatically transfer from your old car to a new one? Do you need to tell your insurance company about your new set of wheels?
It’s best to check with your insurer before you buy a vehicle. The type of car you have and its value determine the premiums you’ll pay — and your insurance company will need the opportunity to adjust your premium up or down.
However, if you’ve already signed the papers and haven’t phoned your insurance company, keep in mind that many insurers have grace periods. Progressive’s grace period, for example, is 30 days. During this grace period, your old policy will cover your new car. After this period, some coverage may lapse and become ineffective.
Be aware that your old car’s coverage will transfer “as is” to your new car. For example, if you have only minimum liability insurance for your old car, that’s all you’ll have for your new car. If you’re financing, a bank may refuse to lend you the money unless you add optional collision and comprehensive coverage.
What if you’re not replacing a car but just adding a new one to your garage? Different insurance companies have different rules regarding the coverage that automatically transfers to your new vehicle. In general, according to the Texas Department of Insurance, the coverage for your new car will match that of the car in your fleet with the broadest coverage. In other words, if you have minimum liability coverage for the clunker and as much coverage as possible for the Passat, the coverage that automatically transfers to the new car will be the coverage the Passat has — the broadest coverage.
If you’re buying new rather than used, consider guaranteed asset protection (GAP) insurance. This covers the “gap” between the money you owe on a vehicle and the actual value of your car if it gets totaled or stolen soon after you buy it. Remember: As soon as you drive off the lot, new cars depreciate rapidly. If the amount that you owe is more than what your vehicle is worth to your insurance company, GAP insurance can be useful.
Say you just bought a new car. On the way home from the dealer’s lot, a distracted driver rear-ends you at a stoplight, totaling your vehicle. An appraisal reveals that the actual cash value of your car is $30,000. But you owe $34,000 to your lender. When you take into account the $1,000 deductible, you’ll get reimbursed only $29,000 for a loss of $34,000. That $5,000 difference needs to come from you if you don’t have GAP insurance.
When buying a car, make insurance one of your first considerations rather than an afterthought. That way, you’ll be sure that you’ll be driving off the lot with the coverage you need and not paying more than you should be.