Trade Car Insurance Information

Trade car insurance provides short-term coverage while a driver trading between vehicles. Trade car insurance is not required in states where license plates travel with the driver and not the vehicle.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jun 29, 2020

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Here's what you need to know...

  • Trade car insurance is not necessary in states where license plates travel with the driver, not the vehicle
  • You can choose the amount of coverage needed for your temporary circumstances
  • Check with your current insurance provider to see if they offer trade car insurance
  • Buy trade car insurance from the dealer as a last resort only

While purchasing a new car tends to be an exciting experience, there are some things that need to be ironed out before the deal is done, such as trade car insurance.

Also known as temporary trade-in car insurance, this type of auto policy is designed to be short-term coverage when you are between vehicles.

However, rather than thinking of it as a separate type of auto policy, think of it as a regular policy with a shorter life.

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Depending on the state you live in and the way vehicle registrations are handled, trade car insurance may not even be necessary. For example, in New York State, license plates do not stay on a vehicle throughout the course of its life.

In fact, many times plates travel with the driver throughout his lifetime, regardless of what he drives. Because of this, you normally would not surrender your trade-in vehicle until the time you pick up your new vehicle. So there’s no lapse in coverage.

Circumstances Dictating the Need

In states where plates and registration stay with the vehicle throughout its lifetime, you are more likely to encounter a situation where you’ll need temporary trade car insurance.

For example, if you purchase a new car but the dealer needs a week or so to get it ready, you may surrender your trade-in at the time of sale. In such a case, you also may need temporary insurance on a loaned vehicle the dealer may provide.

In a similar scenario, you may damage your current car to the point that the car insurance company considers it totaled, yet you need temporary insurance on a loaner while you search for a new car.

In both cases, the insurance needs and coverage will be similar. You simply need minimum coverage for the short period of time until your new car arrives.

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Coverage Provided

You can purchase as little or as much insurance as you need for your temporary circumstances.

What you need will depend heavily on who provides the temporary set of wheels you’ll be driving, so make sure you know what those requirements are.

For many people, if they are allowed to choose exactly the coverage they need, then they will tend to purchase what they normally carry on their own vehicles, if for no other reason than the fact that they are already comfortable with that level of coverage.

Finding Trade Car Insurance

If you’re happy with your current car insurance provider, your best bet will probably be to check with them first. They know you and your driving history, and they are more likely to give you the best rate in order to keep your business.

They will also be more honest with you and not as likely to oversell you on coverage you don’t need.

If you don’t already have a car insurance carrier, or you’re not happy with your current one, shopping around may be in order. Use an internet search tool to start a search of available companies in your state.

Just make sure that when you fill out the quote survey, you answer based on temporary insurance needs.

Buying from the Dealer or Rental Agency


Sometimes in these situations, a dealer may encourage you to simply buy trade car insurance from the dealership or the rental agency they use for loaners. Accept this insurance only as a last result.

Such policies are often very limited in the amount of car insurance coverage they provide yet at the same time are very expensive.

Your dealership or rental agency is not in the insurance business. If they self-insure, they are taking a huge risk; if they get their insurance from another company, then they have to add a little something as a markup.

Either way, they will charge you more for trade car insurance than a regular insurance company.

Once you do settle on a provider for your temporary or trade insurance, plan on paying the entire premium up front. And plan on the insurance provider to be a bit inflexible when it comes to the duration of the policy.

Short-term insurance is a higher risk for insurance companies than standard insurance, and it’s a hassle to administer. To make up for some of this, many providers will go no less than 7 days; some go longer.

You can start looking for trade car insurance quotes right now for FREE by entering your ZIP code!

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