Buying a Car as a Gift: What About Insurance?
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Are you purchasing a car for a partner or a child as a surprise? Holidays are when people tend to make big purchases like this for loved ones. However, before you put a giant bow on the car, it's important to consider car insurance to make sure you’re covered while it’s in your care and after it changes hands.
Let us help you navigate car insurance on a gifted car, so you can know what to expect and how you can protect yourself from losses and prevent being uninsured.
Car Insurance for the Gift Giver: Temporary Car Insurance Coverage
To drive a car home from the dealership or from a previous owner’s home requires car insurance. Chances are that you will not be able to take the car home without it if you’re buying at a dealership, but even if you’re buying a used car from a private owner who is willing to look the other way, you will quickly regret doing so if you find yourself in an accident that is your fault.
If you already have a car insurance policy on another car, there is a grace period in which you are covered for the new car, but only the same kinds of coverage you have on your existing policy. Most insurance companies will allow you anywhere from seven to 30 days to buy a new policy, either for yourself or for the gift recipient. You can also add the car to your existing car insurance policy for a multi-car discount.
If you’re buying a car for a teen or young person with little driving experience, the cheapest insurance option is to put the car on your own policy.
Here’s what you need to do, based on who will be the insured on the car, step-by-step:
1. Understand Your Car Insurance Policy and Grace Period Terms
It's crucial to comprehend your existing auto insurance policy because it’s your policy that will cover the new vehicle you're gifting, and the same coverages and limits will apply.
However, the terms of car insurers can vary. Some policies offer automatic coverage for a certain period (often 14 to 30 days), while others may require you to report the new vehicle immediately or else you’re not covered.
Read your existing car insurance policy to know precisely how it works and to ensure that you have sufficient coverage on the new car. If you’re financing the car, you’ll need to have full coverage, which includes comprehensive and collision coverage. If your existing policy only has state required liability coverage, you’ll need to either add collision and comprehensive coverages to your existing policy or buy a new policy for the new car which includes full coverage.
If you choose to have the gift recipient pay their own car insurance bills, you can buy a car insurance policy and transfer it over to them at a later date or they can add the car to an existing car insurance policy, if they have one. Charges may apply for a transfer. Keep in mind that for the giftee to buy insurance, they must be on the title of the car.
2. Notify Your Car Insurance Company Immediately
Even if your insurance policy states that your insurance company will provide temporary coverage for a new vehicle, you should notify your insurance company about the new car right away or else you risk losing that temporary coverage.
When you call, also discuss whether or not you’ll need to buy a new policy. Unless you want to add the car to your own car insurance policy and pay the premiums, you may need to buy a new policy, especially if the grace period is shorter than the amount of time you have before handing over the keys.
This is also a good time to make sure you have adequate insurance on the new car in case something happens to it, even if you plan to keep it garaged until you give it away. Remember that only comprehensive coverage will cover a stolen vehicle and any damages that are non-collision related, like vandalism or an object falling on it.
3. Transfer the Title
If you plan to have the gift recipient take over an insurance policy that you buy or start a new policy, it’s important to officially transfer ownership of the car to that person. You'll need to change the title of the vehicle to the person you’re gifting by visiting your local Department of Motor Vehicles (DMV) with the original title and a driver’s license.
Here, you will need to fill out a certificate of title transfer form and pay some fees, after providing proof of insurance and possibly doing a smog check if it’s not a brand new car and it’s required in your state.
Ensure that the title transfer is correctly processed so that the name matches that of the insured. Write “gift” where it asks for the price. Without the owner’s name on the title, it’ll be difficult for that person to secure insurance coverage, unless they are the one financing or leasing the car.
Next, you will both have to fill out an Affidavit of Motor Vehicle Gift Transfer form, which will ask for your relationship to the recipient and the giftee’s name, address and phone number.
4. Pay Insurance for the Gift Recipient
If you plan to continue paying the giftee’s insurance, you can add it to your existing car insurance policy and get a multi-car discount, which will save you some money. If you do not want to pay their insurance premiums see #5.
If you’re paying for the loved one’s insurance, you will also no longer need to do a title transfer or you could have both of your names listed on the title. However, make sure the giftee is listed as a driver on your insurance policy.
5. Put The Car on the Gift Recipient's Car Insurance Policy
You may want to place the new car on the recipient's insurance policy. If that’s the case, you can transfer the coverage to their insurance provider, but the giftee will need to be on the title of the new car to buy coverage. The only other time they may be eligible to buy coverage is if they are the one financing/leasing the car.
If they do not have an existing car insurance policy, they will need to compare rates and buy a new policy.
It’s important to buy a permanent car insurance policy for the car as soon as possible, especially if the new car will be the gift recipient’s primary mode of transportation.
6. Register the Car
If the insurance is under the giftee’s name, the registration should be too. Remind the new owner that they are responsible for buying the vehicle’s annual registration under their name. It’s important they have and carry their registration with them whenever they drive.
If you are insuring the car for the giftee, you also have the option of registering the car in your name too.
Car Insurance To-Do’s for the Car Recipient
1. Notify Your Insurer if You Already Have a Policy
To ensure that the gifted vehicle is adequately insured, notify your insurance company about the new car. They can guide you through the process of adding the vehicle onto an existing policy, if you own another car. You’ll be earning a multi-car discount so be sure to ask about it. If you don’t have another car and are buying car insurance for the first time, see #2 below.
The addition of a new vehicle to your policy will increase your premium. The impact on your premium will depend on a series of factors, including the car's make and model, your driving history, credit score (in certain states) and the amount of coverage options you selected. This is a great time to compare rates in your area to get the best deal.
2. Buy Insurance if You Don’t Have a Policy
Is this your first car that someone bought you as a gift? Well, now that it’s in your care, if it’s not insured by a parent or relative, you’ll need to buy coverage, and with specific coverages if the car is being leased or financed. You’ll also want to be on the title and registration if your loved one expects you to pay for car insurance.The best advice for car insurance shoppers, new or experienced, is to compare rates to avoid paying too much. It’s never a good idea to skimp on adequate coverage, and you’ll need full coverage (collision and comprehensive) if the car is being financed or leased.
3. Insured Gift
Let’s say your mom and dad gave you a car and were going to add the vehicle onto their policy, they should list you as a driver on their car insurance to ensure that you’re adequately covered when using the car.
4. Register the Car
You are responsible for paying fees for registration each year unless the relative registered the car under their name. You may also need to pay for a smog check in order to register your car, depending on the age, model and make of the vehicle. Make sure the car is registered before driving it on the road!