Regardless of how you purchase a new car, you must meet your state’s minimum insurance requirements. While these requirements differ by state, below are some of the coverages you can expect to need.
- Liability coverage: Liability coverage covers damage or injuries to other parties in accidents where you are at fault.
- Uninsured/underinsured motorist coverage: When an uninsured or underinsured driver hits you, uninsured motorist coverage (UM) and underinsured motorist coverage (UIM) take care of your expenses4.
- Medical payments coverage or personal injury protection: Medical payments coverage (MedPay) pays for your and your passengers’ medical expenses that result from car accidents. MedPay is only available in at-fault states. Personal injury protection (PIP), on the other hand, includes medical payments coverage but covers other documented losses, such as lost wages and child care costs. PIP is only available in no-fault states like Florida.
Other insurance coverage requirements depend on whether you are buying, leasing, or financing a new car.
Buying a Vehicle
If you are buying your car outright, you only need to meet your state’s minimum coverage requirements.
Leasing a Vehicle
When you lease a vehicle, you pay to drive it for a specified period. Once your lease ends, you either renew the lease, return the car, or buy it.
Since you don’t actually own a leased vehicle, the lessor may require more coverage than the mandatory minimums, such as comprehensive and collision coverage, until you complete the payments. Whether or not you are at fault in an accident, collision coverage will cover damages to your vehicle. Comprehensive coverage covers all other damages not related to collisions like vandalism or auto theft.
Additionally, a leasing company may have a minimum deductible amount you must meet while paying off your vehicle. Since higher deductible payments often lower premium costs, the minimum deductible will increase your monthly costs5.
Financing a Vehicle
Financing a vehicle is similar to leasing, but instead of paying to drive a car, you pay to own it. A bank or dealership may require certain insurance limits for a financed car. These limits ensure you have the means to keep paying your loan if you get into an accident.
Your financing terms won’t change if your car is damaged, but you will still be responsible for loan payments. You could benefit from gap insurance while financing a car: If the car is totaled, gap insurance will pay the difference between what you owe on a vehicle and its actual cash value6.