You’ve run the numbers, compared the car insurance options, and mentally played out endless bouts of haggling to the ninth round.

What’s left between you and that new ride?

Hitting the open road in the U.S. requires car insurance coverage or proof of your financial responsibility, but is that putting the cart before the horse? In other words, can you buy a car without insurance?

Yes, you can complete your transaction without auto insurance—but only if you, the car owner, can meet the price on your own and don’t plan to drive home. Let’s discuss.

Financing & Seller Scenarios

How insurance factors into your vehicle’s purchase primarily comes down to its financing and seller. Trying to purchase a car without coverage probably limits you to used options you can afford out-of-pocket.

So, can you buy a new car without insurance? Well, not unless you have the funds on hand. Whether you’re headed to the dealer’s lot or checking Google Maps to find a Craigslist seller's address, your auto insurance coverage decides how your day ends.

Car Loans

Most car buyers don’t have the luxury of a briefcase filled with $20,840, which was the average price for a used car as of May, 2020. As of 2020’s second quarter, 36.8% of used vehicles required additional financing during purchase. This statistic leaps to 85.5% for new cars requiring loans over the same period. When most drivers consider a different set of wheels, they expect to make payments on a car loan.

With additional financing, your lender maintains ownership of your vehicle until you’ve paid the total amount owed. Lenders use the car as collateral. Your loan approval process requires proof that your policy meets the lender’s minimum liability requirements.

Leases

Insurance is also required to lease a car. A lease allows you to operate a vehicle owned by a dealership or another party for a certain term and payment agreement specified in your contract. Essentially, you’re renting a car for the duration of your lease.

Leases sometimes include “forced place” conditions in their contracts to ensure adequate insurance covers the automobile. “Forced place” allows your leasing company to choose and charge for a specific policy if you haven’t demonstrated proof of insurance.

Paid In Full

Say you do have the cash stashed away to let you purchase a car debt-free.

If you can pay in full, there’s no leasing or lending company to hold up the transaction with proof of insurance demands. Buying the vehicle outright doesn’t require hunting down a new insurance quote or listening to endless loops of your providers’ call-holding tunes. Legally driving off the lot still requires an auto insurance policy, however. Expect auto dealers to require proof of insurance before they hand over your new keys.

Individual sellers probably won’t ask about your policy, but remember that driving in the U.S. without auto insurance (or proof of financial responsibility) is illegal.

Steel Paperweights

You’re out and about when you see that car. How did it end up here, of all places? And for how much?

The only time insurance plays little to no involvement in buying a car is with restoration projects. Since you’re probably purchasing your steel paperweight from an individual seller and towing it home, insurance won’t be necessary for the purchase.

That said, you’ll need coverage to tow the trailer unless a friend does so for you.

New Insurance Policies

Buying your first insurance policy is a daunting experience. Before committing to one provider, collect the information from the “First Insurance Policy Checklist” below and then shop around for quotes to find the best deal. If you intend to share your policy with other drivers in your household, you’ll need their information as well.

For the overall checklist, you’ll need the information below:

  • Driver's license

  • Date of birth

  • Address

  • Occupation

  • Marital status

  • Education level

  • Driving record

  • Known vehicle information (e.g., make, model, year, safety features)

Car and Driver magazine recommends Geico, Nationwide, and USAA for new drivers and first-time policy buyers. To broaden your search while saving time on quote requests, try comparison shopping online. Policy comparison tools will allow you to estimate rates and leverage competitive offers while discussing policies with providers.

Do You Have an Existing Auto Insurance Policy?

Your existing auto insurance coverage probably gives some breathing room when purchasing a vehicle. Contact your insurance carrier to confirm, but many insurance policies offer a grace period for car buyers that extends their current coverage. Although temporary, your policy may insure your new vehicle with the same coverage as your old one.

Contacting your policy provider prior to purchasing a vehicle also lets you ask them to send dealers proof of your insurance or set a new policy’s start date for the same day you drive your new ride home.

Before contacting your insurance company about the change, collect the relevant information regarding your new purchase:

  • Vehicle make, model, and year

  • Vehicle identification number (VIN)

  • Any information specified on your provider’s website

  • Updated personal information missing from your policy

  • Insurance quote from comparison shopping online to determine fair rates

  • Your provider’s discount offers and the vehicle’s features (e.g., automatic emergency braking)

Extending Your Existing Coverage

On top of the limited duration for grace periods, you’ll want to update your insurance policy to protect your purchase. Your new vehicle likely holds a higher value than your old one. Should an accident occur during the grace period, your provider will only pay out the cash value for the make and model specified on your policy.

Responsibility for making up the difference in repair or replacement costs falls to you.

When financing a new vehicle, lenders and leasing companies will probably require comprehensive and collision insurance from the additional plans insurers offer. Collision coverage would handle accident damage even if your car were the only one involved. Comprehensive coverage includes protection from non-accident damage outside of your control (e.g., theft, vandalism, fires, animals, or weather and natural disasters).

If your policy only covers your state’s minimum liability insurance requirements, prepare to extend your car insurance coverage before securing additional financing.

New Car Replacement Insurance and GAP Coverage

Everyone has heard warnings of how fast new cars lose their value after leaving the lot. Expect your new vehicle to depreciate by 10% after you drive it home from the dealer and by 20% after one year. When discussing your policy changes with your insurance agent, ask about protection against depreciation.

Additional coverage options for new car owners include:

  • GAP Insurance – “Guaranteed asset protection” protects drivers who’ve financed their car by covering the difference between their remaining loan balance and the vehicle’s depreciated value.

  • New Car Replacement – Pays the cost for a new replacement of your previous car’s identical make, model, and year (minus your deductible).

“My Insurance Provider Cancelled My Coverage!”

Insurance providers may cancel your coverage due to nonpayment, non-disclosed or inaccurate information, license or registration issues, or a significant increase in at-fault incidents.

While these incidents let insurers cancel your policy at any time, they must provide advance notice and a grace period. The grace period allows you to transition to a new provider without suffering from lapsed coverage.

Reinstating your auto insurance coverage is easiest while still within your provider’s grace period. However, there are no reinstatement guarantees. If your insurance company denies your request, you’ll have to shop for new quotes.

How to Reinstate Cancelled Auto Insurance

When it comes to how to reinstate cancelled auto insurance, you can reinstate your coverage in few easy steps:

  1. Gather your policy’s details and any notices of missed payments, cancellations, or nonrenewals.

  2. Contact your insurance provider and ask to reinstate your canceled policy.

  3. If your former insurance carrier agrees, you must still pay any missed bills and your provider will likely assess late fees or other penalties as a condition for reinstatement.

Consequences of Driving Without Insurance

Across the U.S., every state requires auto insurance coverage or proof of financial responsibility to drive legally. If you attempt to drive your new uninsured vehicle without a valid policy, expect legal repercussions ranging from tickets to a revoked license.

Depending on your state, the consequences of driving without insurance may include:

  • Tickets and fines

  • Suspended or revoked license and registration

  • Relinquishing your license plates to the DMV

  • Mandatory possession of an SR-22 form, a certificate providing proof of insurance

  • Increased rates upon reinstatement or with new policy quotes

You Can Buy a Car Without Insurance—But Why Take the Risk?

Auto lenders and leasing companies will require sufficient coverage to protect their collateral if you need additional financing. Even if you manage to buy a car without insurance, you won’t be driving it home legally anywhere in the U.S.

To that end, if you’re looking to buy a new car and need to find an insurance policy, we can help you identify competitive rates, simplify your search, and remove the headache of comparing different companies.

Sources:

Statista. New vehicle average selling price in the United States from 2016 to 2019. https://www.statista.com/statistics/274927/new-vehicle-average-selling-price-in-the-united-states/

Statista. Share of new vehicles with financing in the United States from 1st quarter 2017 to 2nd quarter 2020. \ https://www.statista.com/statistics/453000/share-of-new-vehicles-with-financing-usa/

Statista. Share of used vehicles with financing in the United States from 1st quarter 2017 to 2nd quarter 2020. \ https://www.statista.com/statistics/453075/share-of-used-vehicles-with-financing-usa/

Car and Driver. Do You Need Insurance to Buy a Car? https://www.caranddriver.com/car-insurance/a31962185/do-you-need-insurance-to-buy-a-car/

Car and Driver. How Much is First-Time Driver Insurance: Everything You Need to Know.\ https://www.caranddriver.com/car-insurance/a35874098/how-much-is-first-time-driver-insurance/#

Ramsey Solutions. Car Depreciation: How Much is Your Car Worth? https://www.ramseysolutions.com/saving/car-depreciation