Don’t Let that New Car Smell Go Bad…

Buying a new car is very exciting.  Whether it is a new car or a used car, most people really are happy driving off the car lot with a new vehicle.

I remember when I was a teenager and the first car that I purchased on my own was a Dodge Daytona Turbo.  Now the combination of a teenage boy and any car with the word “turbo” in it usually is not good.  Especially for car insurance rates.  My parents told me to shop for insurance before I bought the car.  But being that I was a teenage boy who knew everything, I did not call our insurance agent because I was buying that car no matter what!  (I wanted that car to impress a girl.)

So I signed all of the paperwork at the dealership and then called the family insurance agent.  He congratulated me on my purchase and told me that my rate went from $58 per month to $317 per month.  My mouth hit the floor and the excitement of my new car purchase was over with.

I asked my insurance agent why my rates went up so much.  He said that the type of car (especially the turbo part) and my demographic (the teenage boy) and lack of driving experience (only 2 years at the time), was a big factor.  Also, I now needed Collision and Comprehensive on my car because I had a bank loan.

When you have a loan on an automobile purchase, the finance company (credit union, bank, auto finance company) requires that you carry Collision and Comprehensive coverage on your Auto Insurance.  You must also prove that you carry that coverage on at least an annual basis by sending your Declaration Pages of your insurance to them showing that you are current with your coverage.  The lender can also tell you what type of deductible you can have on your insurance.  Usually it is $1000 or lower for deductible requirements.

The reason for this is that the lender owns the asset (car) until you pay off the loan.  They want to make sure that if you get into an accident and you total out the car that they get their money for the asset.  The lender has what is called an “insurable interest” in the vehicle.

Now if the lender finds out that you are not carrying the proper insurance on the car, they will put “forced-placed coverage” on the car which is insurance just protecting the bank and not you.  And you will pay for it because your Auto Loan payment will balloon higher immediately.  And they will charge you retro to when you dropped coverage.  And yes, the bank always finds out that you dropped coverage soon or later.  Always.

We get customers that call us to tell us that they just bought a new car and if they didn’t carry Collision and Comprehensive before, sometimes they are surprised at the difference of the rate.  Usually, they are younger customers that never bought a car before with a loan.  Sometimes we are told that they have a “special” bank that doesn’t require Collision and Comprehensive coverage.  But I have yet to hear of such a bank that would not want/require their asset protected.

My advice is the same advice that my parents gave me many years ago.  Ask your insurance agent how much the insurance payment is going to be before you buy the car.  Make sure that you can afford both the car payment and the car insurance payment.  It just takes a quick phone call to make sure your auto purchase stays an exciting one!

 

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If you'd like to explore your insurance options, please visit our contact page or connect with a member of The Richards Group team at (262) 326-4750.

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