One question a lot of people ask is, “do I need insurance before I buy a used car?”
To put it simply, the answer is yes. You need insurance before you buy a used car. In fact, you need insurance before you buy any vehicle. However, the following guide is designed to help you answer and understand why you need insurance before buying a used car. We’ll also breakdown and review whether you need insurance in other car buying scenarios such as do I need:
- to show insurance at the dealership
- insurance when buying from a private seller
- insurance to register the vehicle
Do Used Cars Need Insurance?
By law, all vehicles need to be insured. However, you don’t necessarily need full coverage. You are only required to get liability coverage.
Liability plans cover your liability if you get into an accident with another driver. These plans do not cover damage to your vehicle. They also don’t cover your risk if you get into an accident with an uninsured driver or if your vehicle gets damaged due to an act of nature such as hail.
If you buy an inexpensive used car, you may want to save money by only getting a liability plan. However, if you get an expensive vehicle, you should protect its value with a comprehensive and collision plan. This covers you in all accidents and acts of nature. Of course, if you seek financing for your vehicle, the lender will require you to have car insurance.
What Type of Coverage Do I Need to Finance a Used Vehicle?
Whether you buy a new or used car, if you finance the purchase, you must have insurance. Wondering why do I need insurance before I buy a used car with financing? Well, the lender needs to protect its interest in the loan.
By extension, you need to get full coverage when you finance a vehicle, even if it’s used. This includes coverage for collision, comprehensive, and uninsured drivers and underinsured motorists. Full coverage protects you from all types of damage including acts of nature and accidents whether they are caused by you or another driver.
To explain, imagine that Bank ABC lends you $15,000 to buy a used vehicle for your family. You make a few payments and drive the vehicle for a few months. Then, you get into an accident that totals the vehicle. At this point, if you have full coverage, your insurer will pay off the rest of your loan so that you can start to look for a new vehicle.
If you didn’t have coverage, the lender would be stuck with an unpaid loan and they would lose money. As a result, if you get financing, you cannot even drive off the lot without having an insurance plan in place.
Do I Need to Show Proof of Insurance at the Dealership?
As indicated above, if you buy a used vehicle from a dealer and have it financed, you need to have insurance before you can finalize the purchase. Even if you don’t use financing, you are still required to show proof of insurance if you buy a car from a dealership.
But how do you set up coverage before buying the vehicle? There are a few different options. If you have an existing insurance plan, you can call them and add the vehicle to your policy before you finalize the purchase. You can actually do this right from the dealership.
If you don’t have a policy currently, you can start a new policy from the dealership. You can take care of this online or over the phone, or some dealers may even be willing to help you.
Alternatively, if you want to save a little time at the dealership, contact the insurance company you want to use before you go. They can set you up with a no car policy and you can add your vehicle once you go to the dealership and make the purchase.
Do I Need Insurance When Buying From a Private Seller?
With private sellers, the seller will likely not ask you for proof of insurance. If you give them the money to buy the vehicle, they will sign the title over to you and let you go. Regardless, you still need insurance to legally drive a vehicle.
So no matter what the seller expects, do not drive away in the vehicle without insuring it first. Just like you can arrange coverage at the dealership, you can also do so at the site of a private sale. To recap, here are your options:
- Add the vehicle to your existing policy
- Start a new insurance policy
- Create a no-car policy and add your vehicle at time of purchase
Do I Need Insurance to Register the Vehicle?
When you buy a vehicle, you must register it with the state, and typically, you do this at your local department of motor vehicles (DMV). However, the state will not let you register the vehicle unless you can show proof of insurance.
Sometimes, we hear clients say, “Do I need insurance before I buy a used car and register it with the state?” Once again, the answer is yes. When you register your new vehicle, you will have to show the DMV the following:
- Your title
- Proof of insurance
- Proof of your address
Then, they will register your vehicle and charge you sales tax as well as a registration fee.