What should I do with insurance when I sell my car?

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Joel Ohman
Founder, CFP®https://res.cloudinary.com/quotellc/image/upload/insurance-site-images/ciccom-live/41b5e36b-joel-ohman.jpg

UPDATED: Jul 6, 2017

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Here's what you need to know...

  • When you list your vehicle for sale and stop driving it, you still need insurance coverage on it
  • The insurance should be valid so the vehicle can be test driven by potential buyers
  • The will be to complete a Notice of Release of Liability with your state’s DMV

When you hold a car insurance policy, you have the right to cancel your car insurance at any time. While that is your right, there is a right time to cancel your insurance and there is a wrong time.

Choosing the wrong time to request a cancellation can lead to penalties, lawsuits, or the loss of money-saving loyalty discounts. This is why you need to know not just how to cancel your insurance, but when to request the cancellation based on the situation you are facing.

If you are putting your car up for sale, you should think twice before you suddenly cancel your policy.

You may not plan on owning the vehicle for much longer, but prematurely requesting your company to terminate coverage is the last thing you want to do as a responsible title holder.

Read this guide on how to handle your car insurance as you are listing your car for sale. You can start comparing rates with our free comparison tool above!

Should you cancel your car insurance when it is listed for sale?


In order to afford potential buyers the option to test drive the car, the car needs to have valid plates.

When you list your vehicle for sale and you stop driving it for personal use, it might feel like it is time to cancel the coverage until you are ready to make a new purchase. This is a premature decision because the vehicle will still be registered in your name and titled in your name. 

You need valid car insurance in the name of the party who has a financial interest in the car — you.

If you do cancel your coverage when it is parked but still registered as operable, you may face severe penalties.

When a vehicle is registered with a state’s Department of Motor Vehicles, insurance cards must be presented and coverage must be maintained. Storing a vehicle just so that it can be sold does not eliminate the need for insurance.  

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What are the penalties for canceling insurance on a registered vehicle?

You might not intend to drive your vehicle that is listed for sale, but at a minimum, you will need to be able to drive the vehicle down the block for scheduled test drives or to deliver the car to a purchaser.

The worst thing that could happen is having an at-fault accident while you are driving the car for just minutes.

The penalties for driving without insurance vary by state. Some states have much stricter consequences than others, but a majority of states have similar laws.

For example, if you are pulled over by law enforcement for driving uninsured in California or the DMV is notified that you have let your coverage lapse, you could face the following legal and civil penalties:

  • Misdemeanor conviction if cited for driving without insurance
  • Fine assessment by the courts
  • Vehicle impoundment at the site of the citation
  • Storage and towing fees
  • Requirement to attain insurance and to file an SR-22 for three years
  • Requirement to appear in court
  • Suspension of driver license and registration
  • Fines to reinstate registration when suspended
  •  An order to serve six months in jail for multiple offenses

Can you cancel insurance when the vehicle is officially sold?


You have finally come to an agreement and sold your vehicle. You have a signed bill of sale that includes the VIN, the vehicle make and model, the sale date, and the name of the owner and the buyer.

With all of this information, you are signing away interest in the car and no longer have an insurable interest in the car.

After you have signed a bill of sale and the transaction is complete, you need to complete one more step before you should cancel coverage.

The last step will be to complete a Notice of Release of Liability with your state’s DMV.

This form is filed with the department and tells them who bought the car just in case they never transfer the registration.

After this is filed, you can legally cancel your insurance without facing penalties and without any worries that damages will be your responsibility.

Is it ever appropriate to maintain insurance when your vehicle is sold?

After the release is filed, you might be tempted to rush and cancel your policy so that you no longer receive premium notices. If you do not plan on ever replacing the vehicle, there is no reason to keep the coverage active.

If, however, you are going to replace the car and you just have not found the right option yet, it can save you time and money to keep the policy active. Here are some reasons why you should not cancel a policy when you are buying a new car:

– Keeping Your Loyalty Discount

If the vehicle you recently sold is the only vehicle that you own, canceling the insurance is essentially like canceling your loyalty discount.

If you keep your policy active with minimum coverage options while you look, you can still receive these great discounts.

When you are with an insurer for an extended period of time, they thank you in the form of savings. Once the policy cancels that loyalty is gone.

– Make Buying Coverage Easy

With most companies, you can simply do a vehicle replacement when you delete one car and add another. By doing it this way, you can make the process all the easier.

You will just need to call with the vehicle identification information, select an effective date, and modify coverage when necessary.

Many times, you will not even need to make a payment for coverage because the difference in premiums will just be billed to you later.

If you have found that canceling your auto insurance is the best option for you, prepare your cancellation request properly. Most companies will request that you cancel in writing.

When you write a request, you need to include your policy number, your name, the date you want the cancellation processed, and where to send any refunds.

If you do cancel your policy before buying a new car, make sure you compare rates by using our free comparison tool below!

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