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First-Time Car Insurance: Everything You Need To Know

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Published: 30 November 2024

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You’ve had your eye on a car for a while. Maybe it’s out of necessity or maybe it’s a daydream ride you’ve been obsessed with since you saw the car sitting pretty in the dealership.

Either way, buying your first car is a big decision!

If it’s your first time buying a vehicle, there is a lot to consider about how it will impact your financial future. Not only do you have to consider the payment for the vehicle, but also the cost to run the vehicle itself—the gas, repairs, maintenance, and auto insurance. So, where do you start?

Before You Go to the Dealership

When you step foot on the dealership lot, you may be bombarded with salespeople ready to get you to sign on the dotted line and drive out of the lot with your first vehicle today. But let’s pump the breaks for a minute. Even before you drive down to a dealership or go meet up with someone to buy a used vehicle, here are some things you should consider:

Set a Monthly Budget

This budget should include monthly finance payments, cost of gas, cost of car insurance, additional warranty cost, parking fees and the extra money you put aside for repairs and maintenance. Find your maximum budget for this so you know your limit when it comes down to negotiating a deal for the total cost of the vehicle.

Make a Backup Plan

What if you can’t afford your car payment? Do you have someone to bail you out? Do you have an emergency fund to get you through? You do NOT want to miss a car payment. It will negatively affect your credit score and your vehicle can be taken away from you if you miss payments.

Similarly, with your insurance policy, if you miss a monthly payment, the company may cancel your insurance and not offer a payment plan again. If you can, try to have a backup savings fund.

Finance, Leasing or Paying in Full?

If you’re buying a used vehicle, you usually pay for the car in cash, but at a dealership, you may also have the option of financing or leasing. These two types of payment contracts both have their pros and cons—it depends on how committed you are to keeping the vehicle.

What You Need to Know About Insurance

While you may have your eye on a shiny, brand-new, off the lot car, it may not be affordable when you factor in the cost of your car payment and the insurance payment each month. Shopping around is the best way to make sure you’re getting the best rate possible. Your first call to an insurance company may seem like a good deal, but you don’t know until you’ve called others.

Insurance Broker versus Insurance Agents

When you make the call to get a quote, you may be speaking to a broker or an agent. An insurance agent works for one particular insurance company. They will be able to provide you a quote from their company directly. An insurance broker may have access to quote many different insurance companies at the same time.

When contacting a broker, you save time by comparing many companies at once, but there may be brokering fees involved or the brokerage may have in-house rules for payment plans. You do not have to limit yourself to one broker or one agent. Always shop your options.

Collecting Insurance Quotes

When you call to get a quote, you’ll need your prospective vehicle information on hand so the broker/agent can provide you with the most accurate pricing possible. This information includes:

Vehicle year, make, model.
Vehicle Identification Number (VIN).
Annual mileage you will put on the vehicle.

You will also need your driver’s license information such as:

Driver’s license number.
Years of license history (i.e. drivers abstracts or out of province/state driving history).
Any previous insurance history information.

Your broker/agent may be able to quote out a few vehicles you have in mind, but you should stick to your top 2 or 3 choices to quote so you aren’t overwhelmed with information.

What Insurance do You Need?

The type of car insurance you need depends on if you’ve bought your vehicle in cash or if you’ve financed or leased your vehicle—when you finance or lease your vehicle the finance contract will likely require you have full coverage on the vehicle.

Types of Vehicle Insurance Coverage

The following are the different type of coverage you’ll find on standard auto insurance policies:

Third-Party Liability – this type of insurance for any damage of third-party property to bodily injury you may cause with your vehicle. This coverage pays to fix the other person’s vehicle when you get into a claim.

Collision Coverage – this type of coverage pays for your own vehicle to be repaired or replaced in the event of a moving accident. You make a claim, and your insurance company will provide you a payout to repair or replace your vehicle.

Comprehensive Coverage – this coverage pays for your vehicle to be repaired or replaced in the event of a “non-moving” event such as fire, theft, vandalism, wind, hail, etc. Always check with your broker or agent about what “comprehensive” coverage entails. Depending on the company, it may not be as “comprehensive” as it sounds.

Endorsements – These are the “extras” on your policy. They might include special offers from companies such as replacement cost coverage, reimbursements for emergency services such as tows or key replacements. These coverages are optional but are recommended for new vehicles to provide you with full peace of mind.

What is Full Coverage?

When brokers or agents say, “this policy is full coverage,” this usually means it includes Third Party Liability, Collision, and Comprehensive coverage. It may sound like you are protected in all scenarios, but that might not be the case. Always ask your broker/agent what exactly full coverage entails for their insurance company—sometimes it includes the endorsement extras and sometimes it doesn’t.

What You Should Expect to Pay for Insurance

If you are a new driver and new to purchasing insurance, the price you pay for insurance will be high. Sorry, we can’t sugarcoat this.

The reason you’ll pay a higher price when you start out is that the insurance company does not know your level of risk yet. They base their premiums off of the risk that you will get into an accident that they will have to pay to fix. Newer drivers get into accidents more frequently and therefore, based on those statistics, they are charged a high premium.

In addition to your driving history, the insurance premium is also based on the vehicle you choose to buy. Newer vehicles are more expensive to replace because they have more non-standard features such as backup cameras, windshield sensor calibrations, and other proprietary parts.

Other pricing factors include your age, gender identity, postal code, credit history, and if you have other types of insurance products with that company.

Standard lability prices for basic insurance is about $2,500 – $3,000 per year. The price goes up from there depending on what kind of insurance you need. For example, if you need full coverage, your insurance may be around $5,000 + per year if you are brand new to driving.

The price for basic mandatory liability insurance is usually regulated by province or state, but the cost for collision and comprehensive insurance is competitively priced between each company and is where you should do most of your cost comparisons.

How to Save Money on Your Insurance

The more years of claims-free history you have, the lower your insurance cost will be. It may be difficult to start out paying a high price, but if you keep out of trouble and avoid accidents, then it will pay off for you as the years go by.

But this year, ask your broker or agent about discount programs they offer. The insurance company may offer occupational discounts, home and auto discounts, family discounts, or usage-based pricing.

We know buying a vehicle is exciting and you’re eager to drive your new baby home today (the car dealer is excited about this too!) But slow down. Take a breath. Take time to consider all the financial responsibilities that come with owning a car, including the cost to insure it.