Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager Chris Harrigan

UPDATED: Apr 13, 2022

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Here's what you need to know...

  • By law, you must purchase a minimum amount of liability insurance on any new or used car that you own
  • The types of coverage that you must carry and the limits that are required are mandated by the state. Every state has its own unique auto insurance system and requirements
  • If you don’t buy state-mandated coverage on a new vehicle when it’s transferred to your name, you’re guilty of violating the insurance law. The penalties for failing to maintain coverage could include suspension of your license, SR-22 filing requirements, fines, DMV fees, and a 6-month jail sentence
  • The liability requirements as they are mandated by the state are low. If you don’t have enough coverage, you could be ordered to pay thousands to a third-party. Protect your income and assets by choosing higher limits
  • If you’re financing your new car, you’re obligated to comply with the terms of your contract. The lender requires every borrower to purchase full coverage on the vehicle being financed to protect their interests in the car

When you’re shopping for a brand new car, you need to look past the sticker price and consider the true cost of ownership.

Not only do you have to pay the agreed upon sales price, you also have to pay for recurring expenses like gas, maintenance, interest charges, titling fees, and insurance premiums. Out of all of these expenses, insurance tends to be the most expensive.

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All new car buyers have intentions of keeping their insurance premiums as low as possible. Unfortunately, it’s easier said than done when you’re required to purchase full coverage. Before you buy a new vehicle, you should know how much insurance you’ll need on it.

Here’s a guide that will help you comply with state laws and other requirements:

Basic Liability Coverage As Required By Law


State insurance commissioners are in charge of deciding how much insurance is required by law.

When you live in a state where auto insurance is mandatory, you must buy insurance as soon as you become a car owner. If you don’t buy at least basic liability coverage on the new car, you’ll have to answer to law enforcement, the DMV, and even the courts.

Every state has different requirements. If you’re trying to keep your premium as low as possible, you’d elect to carry a basic liability policy.

With a basic auto policy, you’ll have nothing more than a minimal amount of third-party liability coverage to pay for damages that you’re liable for. Basic insurance doesn’t compensate you but it does help you avoid tickets and penalties.

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What coverage options are compulsory?

If you live in a state where fault dictates which insurer pays for medical bills, you must comply with tort auto insurance laws. In states with tort laws, liability coverage is a must.

Here’s a breakdown of common requirements in states with a tort system:

  • Bodily Injury Liability  pays for medical bills, emergency transport, rehabilitation costs, and funeral expenses when a pedestrian, bicyclist, driver, or passenger is injured in an accident
  • Property Damage Liability  pays for repair bills when a car, a building, a fence, a bench, or another other property that you don’t own is damaged

If you live in a state that requires everyone to carry first-party medical expense benefits, you must comply with no-fault auto insurance laws.

There are several different forms of no-fault laws, but in each of the states, drivers must carry their own insurance that will cover their medical bills. Here’s a breakdown of requirements in no-fault states:

  • Personal Injury Protection  pays for you and your family’s medical bills, lost income, rehabilitation costs, and other related expenses when you’re injured in an auto accident
  • Property Damage Liability  pays for the repair or replacement of non-owned property when you’re liable for the accident. In no-fault states, at-fault parties are still responsible for paying for repairs

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Do you need higher limits of liability?

When you look up state requirements, you’ll find that requirements are broken up into three different numbers that represent the limits that you must carry for three different types of liabilities.

These dollar amounts are written in increments of $1000. Satisfying the limits will help you satisfy the state, but that doesn’t mean you have enough coverage.

When you’re buying a policy, you have to contemplate what could happen if you have a catastrophic loss. Since most injured parties have the right to due for damages, you could face litigation for months trying to defend yourself against an unfounded claim.

The key is to carry higher limits so that a judgment doesn’t affect your income or assets.

How much liability insurance is enough?

It’s difficult to predict how much liability coverage you would need if you had an at-fault loss sometime in the future. Buying a minimal amount of insurance is like gambling.

The state isn’t concerned about higher limits about liability but leasing companies are.

Most experts recommend that all new car buyers carry at least:

  • $100,000 per person in Bodily Injury Coverage
  • $300,000 per accident in Bodily Injury Coverage
  • $100,000 per accident in Property Damage Coverage

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Physical Damage Coverage on New Cars


New cars hold value, even though their values depreciate quickly once you drive off the lot. If you can’t replace the vehicle on your own, you need to carry physical damage coverage to help you cover repair costs.

Physical damage coverage consists of comprehensive and collision coverage which pays for collision-related and non-collision losses.

If you didn’t pay cash for your car, you’re required under your financing agreement to carry full coverage at all times.

The lender might even decide how high your deductibles can be. When you finance a new car with a small down payment, it’s advised to purchase GAP coverage so that you don’t have to pay the balance of your loan off by yourself.

It’s very difficult to build an auto insurance policy when you’re not familiar with requirements and coverage options. Now that you know how coverage options work, it’s time to price the cost of auto insurance on new cars that you’d like to test drive.

For quick quotes, use an online rate comparison tool and plug in your personal information. Once you use the tool, you can decide which new car to buy.

In fact, you can use our FREE tool below to compare car insurance rates from top companies in your area today!