Do You Need Full Coverage Insurance on a Used Car?

Posted Friday, Sep 23, 2022

Buying a car is an exciting decision: looking for models, doing test drives, picturing yourself going around town driving with your friends or partner. However, it can come with a dose of stress. If you’re buying a pre-owned car, you may have many questions about insurance. You may be wondering: ‘Is there a difference between insurance for new and used cars?’, ‘If I pay in cash, am I obligated to get full coverage insurance?’, ‘are insurances for pre-owned cars cheaper than for new ones?’ At Lux Auto Centre, our goal is to make your car buying process as straightforward as possible. Keep reading to find the answers you're looking for.

What Is Full Coverage Insurance?

First, you need to understand what full coverage insurance is. It isn’t an insurance plan in itself, but rather a combination of three of the main types of coverage: liability, collision, and comprehensive insurance.

Liability insurance: 

This is the minimum car insurance required by almost every state. In the case of an at-fault accident in which you were the driver, it covers bodily injuries and property damages. This means it covers the medical bills and other accident-related expenses of the other driver and their passengers. It also covers damages to property affected in the accident; this can be the other car involved, a house, or a public or privately-owned building. This insurance does not cover your own car or injuries. 

Collision insurance: 

Collision insurance is optional. It covers damages to your car in the event of an accident, even if you are the at-fault driver.

Comprehensive insurance:

 This type of insurance is also optional and its coverage pays for damage caused by hurricanes, fires, vandalism, and events other than car accidents.

Do You Need Full Coverage to Finance a Used Car?

Both new and used vehicles have the same general rules when it comes to purchasing car insurance, although insurance for pre-owned cars tends to be cheaper. If you pay for your car in cash, you can choose what type of insurance you want to get. In this case, you wouldn’t necessarily need full coverage. However, it’s advised to get full coverage if your car is less than ten years old.

If you finance your car, you will pay it over time with a loan. This means you won’t have the title of your vehicle until you pay off your loan. While you pay for it, the lender will be the legal owner of your vehicle, and they will most likely ask you to have full coverage insurance in order to stay protected. Lenders need to make sure that even if your car is totaled or stolen, they will receive full payment. After you finish paying off your car, you will be able to choose if you want to continue having full coverage insurance or if you want to save by reducing your coverage.

Do You Need a Separate Policy for Your Used Car if You Already Have Insurance?

You will not need a separate policy if you already have car insurance, but you will have to inform your insurance company of your new purchase. Your current insurance policy will cover your new vehicle for a grace period, which is typically between seven to thirty days before adjusting your insurance coverage. Your premiums (the amount of money you pay for your insurance policy) will likely change depending on whether you are keeping your previous car or you are replacing it. When you contact your insurance company, make sure to provide them with the year, make, model, and VIN of your new pre-owned car.

Should You Have Full Coverage Insurance?

When you have the title of your new car, you will need to decide whether you want to pay for full coverage insurance or not. There are many things to keep in mind before making your decision. Apart from the advice we mentioned before, in which you should consider paying full coverage if your vehicle is less than ten years old, there is another rule. If your annual premiums for comprehensive and collision insurance amount to 10% or more of your car’s market value, you could consider just paying for liability insurance, which is the only one that is mandatory. For example, if the total value of your car is $6,500 and the annual premiums of comprehensive and collision insurance are $800, it may not be worth having full coverage insurance. However, if you get a luxury car, it is financially advisable to get full coverage insurance. 

What’s important is that you make a decision that you feel comfortable with. You can better understand your needs by asking yourself these questions: Could you replace your car in the event that it is totaled? Are the parts of your vehicle easy to replace if you need to? How high is your tolerance for risk? 

Are Insurances for Luxury Cars More Expensive than for Regular Cars?

Generally speaking, yes. Since their value is higher, any damage that occurs to them will cost more to cover. But there are some brands and models that can have low insurance premiums. Volvo, INFINITI, Acura, and Mercedes-Benz are among the most affordable luxury brands to insure. Remember to always ask for quotes from different insurance companies so you can choose the best option for you.

The bottom line is you do not need full coverage insurance for your new pre-owned car if you pay in cash. If you finance it, you will likely be required to have full coverage until you pay off your loan. After that, you are free to choose what kind of coverage you want. In both cases, you will have to weigh the advantages and disadvantages and determine how comfortable you feel with different levels of risk.