How does insurance work when you buy a used car?

If you want to get more car for your money without having to worry about sudden depreciation, you’re best off buying a used car.

When you do your research, you can find a used car in good condition that’s priced within your budget and still has all of the features that you want. It’s important not to forget to account for your insurance expense when you’re setting your budget. (For more information, read our “Do I need to have insurance before I buy a used car?“).

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Buying a used car doesn’t necessarily mean that your rates will be lower than they would be if you were to buy a new model. Several different factors are used to determine rates.

Before you start to shop for a vehicle, you should familiarize yourself with how insurance works. Here’s a consumer guide that can help you build the right policy:

How are rates for personal auto insurance determined?

Insurance companies typically use the same factors to determine how much any driver will pay for auto insurance.

It doesn’t matter if the vehicle is in new condition or in used condition, the same rating factors will be used to set rates every time a company gives a rate quote. Each factor that’s used is believed to affect risk.

Some of therating factors a company will use are common knowledge and others are a bit surprising. Before you assume that you’ll pay a significantly lower rate for insurance than a friend, you need to get the big picture.

Having a clean claims record doesn’t guarantee low rates. Here are some of the different factors that can drive your rates up:

Age, Gender, and Marital Status

Your age, your gender, and your marital status are all rating factors that are directly related. In most states, young drivers pay higher rates simply because they don’t have a lot of experience operating cars.

Some states, like California, don’t allow companies to use age for rating. In these states, the insurer will only consider driving experience.

These inexperienced operators will pay even more if they are single males. In fact, male drivers between 16 and 19 pay higher rates than drivers in any other group. Married males statistically have fewer losses and therefore cost less to insure.

Driving Record and Claims History

You strive to keep your driving record clean so that you don’t have to pay those dreaded surcharges. Not only can a single moving violation cost you a surcharge, it can also cost you a sizable Good Driver Discount. This is why you should take traffic school when you’re eligible.

Garaging Zip Code

Your territory can affect your rates. If you live in an area where there’s a high accident rate or a high crime rate, you could pay more than the average person for coverage on your used car.

Vehicle Type, Rating, and Usage

Several different factors concerning the vehicle will affect rates. If you’re buying a larger car with a poor safety rating, you’ll pay more for liability coverage.

If the vehicle costs a lot to repair, the ISO rating can affect the rates. Cars driven for business or commute cost more to insure than cars driven for pleasure.

What type of insurance are you required to have when you complete the transaction?

When you buy a used car, whether it be from a dealer or from a private party, you must buy your own insurance on the vehicle right away.

Since all states have some sort of insurance law in place, you need to be sure to comply with the law when you take ownership of the car. If you don’t, you could face serious penalties.

Not only can the state assess penalties, for failing to buy insurance, the dealer can hold onto your keys until you can show that you have at least some coverage.

It’s the dealer’s obligation to see your proof of insurance before they submit vehicle registration paperwork to the DMV.

Do you need full coverage on a used car?

There’s no state law that says that you must carry physical damage on your vehicle. The state will only require third-party coverage and perhaps some first-party medical coverage.

While you don’t have to prove that you have comprehensive and collision to the state, you may have to prove that you have full coverage if you’re financing your car.

Physical damage coverage is a requirement whenever you’re financing a car. The finance company paying for a car and then taking you for your word that you’ll pay the lender back.

Since you’re likely to stop paying your loan if your car is totaled, you must have a full coverage policy with the lender named as the loss payee.

You May Have Automatic Coverage

If you have insurance, your existing policy will automatically cover the car that you buy for between 14 and 30 days. Only the coverage that you have on the policy will apply.

In some cases, newly acquired vehicles will get full coverage for four days even if you have a liability-only plan. Check to see how long you have to add the car.

If you don’t have existing coverage or you’re paying too much for the policy that you have, you should shop around.

The best way to compare used car premiums is to use an online quote comparison tool. Get several quotes instantly and bind the best option.

Enter your zip code below to compare car insurance rates from multiple companies at once!