If you have ever sold a vehicle to a private party, you have likely found yourself wondering what to do about insurance when selling a car. You are not alone. Navigating the world of auto insurance can be confusing, especially when it comes to private sales.
In this guide, we’ll discuss what you should do with your old auto insurance policy when you put your car on the market. We can also help connect you with top insurance companies like GEICO, USAA and State Farm. Our experts have reviewed every major insurer in the nation so that you can buy with confidence. To get free quotes from insurers in your area, enter your ZIP code below.
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What to Do With Insurance When Selling a Car to a Private Party
Many vehicle owners mistakenly believe that they do not need to maintain insurance on a vehicle they do not drive. While it can be tempting to cancel coverage on a vehicle that you have listed for sale, doing so can have major consequences.
If you want to avoid any unforeseen penalties, maintain coverage on all of your registered vehicles until all sales are complete. “For sale” vehicles should also be insured so that any prospective buyers can legally take them for a test drive.
After you have completed the transfer of ownership, notify your insurance company of the change. You can then modify or cancel your existing policy. Make sure to contact your insurance company quickly after the sale. Failing to do so can have a major impact on your ability to get insurance in the future, but we’ll talk more about that a bit later.
Penalties for Canceling Car Insurance on a Registered Vehicle
In virtually every state, a vehicle must be insured before it can be registered or transferred. Once a vehicle is registered and insured in your name, it is your responsibility to keep it current and up to date.
Allowing a lapse in coverage can result in stiff penalties. Depending on your state, canceling car insurance on a registered vehicle may result in:
- Suspension of your driver’s license
- Jail time
Make sure that you are maintaining the minimum coverage as required by your state. If you intend to cancel your policy, do not do so until the buyer has signed the title and officially taken possession of the vehicle.
What to Do After the Sale of the Vehicle is Complete
When selling your vehicle to a private party, you are responsible for contacting your insurance company. Once the vehicle has been paid for and the bill of sale has been signed, you can then take action on your existing policy. You will have the option to either cancel the policy or amend it to remove the vehicle that has just been sold.
Some states may also require that you complete a Notice of Release of Liability. If your state requires this document, it must be submitted to the department of motor vehicles (DMV) before you can cancel your policy. If you cancel it prematurely, you may face penalties as described above.
Do not simply stop making payments to your current insurance provider. If you do so, it may be more difficult to get a new policy in the future. Depending on the exact terms of your existing policy, you may also be subject to fines and additional fees.
As long as you follow all state guidelines, canceling auto insurance coverage after selling a vehicle is a simple process.
When You May Want to Keep Coverage After Selling a Car
Depending on your specific circumstances, you may want to keep your existing auto coverage after selling a car. For instance, if you do not plan on buying a replacement vehicle right away, it may be worthwhile to stay with your current company.
If your current insurance provider offers discounts, such as a loyalty program, you will lose out on these benefits by canceling your policy. Instead, you should consider keeping your policy active until you transfer coverage to a new vehicle.
In addition to allowing you to keep benefitting from any loyalty discounts, maintaining continuous auto insurance coverage will make it easier to get good rates in the future. Even if you have sold your vehicle, insurance providers will still check for lapses in auto coverage. Many of the major providers require that you have several years of uninterrupted coverage to qualify for certain discounts.
Our Recommendations for Auto Insurance
Now that you know what to do regarding insurance when selling a car, it is time to connect you with a great insurance provider. Whether you are looking for full coverage auto insurance or a more basic liability and uninsured motorist policy, our tool can help you find great insurance rates. Simply enter your ZIP code below.
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GEICO: Best Overall
For decades, GEICO has been a staple in the auto insurance industry. Our experts named it the Best Overall insurance provider and awarded the company a score of 9.5 out of 10.0. The well-established insurer provides flexible coverage options and loads of discounts, which means that you can easily find a policy for your driving needs.
State Farm: Best for Student Drivers
Looking to insure a student driver? If so, State Farm may be the right car insurance company for you. This insurer earned a score of 8.9 out of 10.0 from our experts. It has plenty of coverage options and student-specific discounts to help you save money.
FAQ: What to Do with Insurance When Selling a Car
Should you cancel your insurance when your car is listed for sale?
No, the best approach is to keep your auto insurance coverage until the sale is completed. This gives you the freedom to use the vehicle if necessary. In addition, maintaining the insurance while a vehicle is registered in your name prevents any negative actions from being taken against your driver’s license.
Can I make a car insurance claim after selling a car?
Generally, you should make any insurance claims before a vehicle is sold. Your insurance provider may want to inspect the vehicle and assess any damage. It is difficult for an insurance provider to verify that damage occurred while you owned a vehicle if you wait until after a sale to file a claim.
Can I get a car insurance refund after selling a car?
In most cases, yes. If you paid your six-month auto insurance premium in advance, you should be eligible for a refund when you cancel your car insurance. However, most providers charge early cancellation fees, which will likely be deducted from your refund.
What happens if I forget to cancel my auto insurance before renewal?
If you forget to cancel your auto insurance before it renews, you can always cancel your car insurance later. Unfortunately, you may incur some penalties if taking this route. It is best to cancel your auto insurance policy after a vehicle is sold unless you plan on transferring it to another vehicle.
The Detroit Bureau collects data from every major car insurance provider to formulate rankings of the best insurers. Our in-depth rating system takes into account market share, coverage, pricing, customer satisfaction and ratings from industry experts. Each insurer is given a weighted score in four categories, as well as an overall score out of 10.0.
We recommend auto insurance companies based on these rankings, but we also encourage you to perform your own research and compare quotes to find the best coverage.