Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Aug 28, 2021

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Insurance Q&A: Do I need insurance to buy a used car?

The devil is in the details when it comes to answering this question. While it is mandatory in nearly every state to have at least minimum car insurance coverage (liability-only) to operate a motor vehicle on a public road, it is not mandatory to purchase insurance coverage to buy a used car in every situation.

But there’s a catch or two involved here…and you will likely need to get the insurance going in almost every scenario.

*As a rule of thumb, if you intend to drive the car anywhere, you should certainly have coverage in place when purchasing it.

Are you getting a loan?

First things first, you will need insurance coverage if you are borrowing money to purchase the car. Your lender will require you to have physical damage coverage on your auto policy. This will include both comprehensive and collision coverage.

[What is the difference between comp and collision?]

While your state only requires the liability car insurance, the lender will force you to purchase this type of coverage in order to protect their financial interest in your car. After all, technically they own the car until you pay off the loan.

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Are you purchasing your car from a dealership?

If you plan to purchase your pre-owned vehicle from a dealership, you better get your insurance lined up.

Any reputable dealership, selling new or used vehicles, will likely require you to provide evidence of insurance coverage before driving off the lot.

This may be the case even if you do not take out a loan to purchase the car.

Are you buying from a private seller?

This is probably the only scenario where you might get away with the purchase transaction without having to show proof of insurance.

This would only play out if you were paying cash though.

Again, if you are borrowing money to buy from a private seller, your bank will want the evidence of insurance from you (see above).

What kind of auto insurance do you need?

This will vary depending on where you live; different states have different minimum requirements for auto insurance. At the very least, you’ll need to have liability insurance (bodily injury liability and property damage liability), and as mentioned above, if you’re financing your vehicle you will also need collision and comprehensive insurance. Some states also require you to have personal injury protection and uninsured/underinsured motorist coverage.

Depending on your needs, you may also wish to add coverages like GAP insurance, roadside assistance, and medical payments coverage. GAP coverage is a great idea if you don’t want to get stuck paying off an auto loan after your car is totaled. Talk to your auto insurance company about your needs and the types of coverage that are available.

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How much does auto insurance cost?

This will also very, but it depends on personal factors like your age, gender, marital status, driving record, and credit score. Insurance providers evaluate your risk profile based on these factors when determining the price of your insurance premiums.

However, to give you an estimate, the National Association of Insurance Commissioners (NAIC) puts the average cost of insurance in the United States at $1,190 per year.

If you’re having trouble paying for the coverage you need, make sure to ask your provider if you qualify for any insurance discounts.

Do you already have an auto insurance policy?

There is a new (or used) car grace period on existing auto insurance policies that affords you a few days to give notice of your new purchase or replacement vehicle.

During this period, your existing coverage may be extended to your new car.

There are restrictions though, so be sure to contact your insurance agent or insurance company to verify all of the details before driving off the lot.

Tip: How does the insurance company determine the value of a car?