What to Do With Car Insurance When Selling a Car (Laws + Coverage)

What should you do with car insurance when selling your car? Keep your car insurance active until the sale is complete. You're required by law to have insurance on a car you own in most states, and as long as you own it, you are responsible for any damage done by a driver of that vehicle.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State...

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Reviewed byJoel Ohman
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UPDATED: Jun 25, 2020

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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
  • There will be a need 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. For example, you might wonder, “What should I do with insurance when I sell my car?” or  “When do I cancel my car insurance after selling?”

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 selling your car, 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 your car insurance policy is the last thing you want to do as a responsible title holder.

Read this guide on what you should do with your insurance policy when listing your car for sale. You can start comparing car insurance rates with our free comparison tool above!

Do I have to have car insurance on my car if I’m selling it?

Maybe you’ve been thinking about putting your car up for sale. If it is an older vehicle that is no longer being driven, you might wonder, “do I need insurance on a car I’m selling?” You might even try selling your car without insurance.

How about another scenario? Recently you’ve come across a new set of wheels, and your old car is no longer of interest to you. In this case, you might be tempted to cancel your insurance. Why pay monthly for rates when you are no longer interested in the car, right? It could definitely seem like a waste of money because surely that money could be used to spend elsewhere, like toward a vehicle you’re actually interested in. So do you need insurance while selling an old car?

While it may seem tempting to cut ties with the insurance company, if the vehicle is operable, by law, you may be required to carry the minimum requirements of insurance for the vehicle.

In most states, whenever you have a motor vehicle, they need to be registered. But before you can get your vehicle registered, you must have insurance.

Chances are, you may still need the vehicle to run errands here and there. So it’s best to maintain the minimum coverage on your vehicle when you’re thinking about selling it.

Before we move on, there is one loophole that might get you out of paying insurance if you don’t plan on using the car. Some states, like California and Connecticut, have special guidelines for a car that is “inoperable.” In Connecticut, for instance, you can place your car on a “hold” status where afterward, you are able to drop insurance on the vehicle.

While this may seem like a win for some, keep in mind the dangers of vandalism and theft on a vehicle that is no longer insured.

Checking with your department of motor vehicles on your state-specific laws might be a good bet as you are thinking about selling your car. But what should you do with your car insurance when you actually put your vehicle up for sale — we’ll talk about that next.

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

So the time has come. Perhaps you finally made the decision to pursue that new set of wheels. You may have realized the current car in your possession is no longer worth the investments and that something else on the market would suit you better. Whatever the case may be, you decide to put your car up for sale.

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

Even if you stop driving the car for personal use, in order to afford potential buyers the option to test drive the car, the car needs to have valid plates, and everything must be up to date. This includes your insurance.

The owner of the vehicle is still the responsible party for damages that are sustained at the hands of a driver in their vehicle. That’s the reason why you want to maintain coverage while you’re in the process of selling your car.

Asking the potential buyer if they have liability and physical damage coverage is a smart bet, but to be on the safe side, you don’t want to put the situation in the hands of the prospective buyer.

Getting into an accident without an insurance policy could leave you with a pretty expensive tab.

And that’s something you definitely do not want. This, of course, doesn’t include the legal ramifications you could face.

As you know, these vary by state and could include fines or even the suspension of your license. And even in the event that your state doesn’t require insurance, paying expensive medical bills or physical damages for an injured party when you’re trying to purchase a new car wouldn’t be the most efficient route to take.

Lastly, you might make the argument that you don’t plan on driving the car — at all.

Well in that case, 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.

What are the penalties for canceling car 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. But let’s say you cancel your insurance before selling your car for whatever reason.

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

Driving without insurance is a strict violation of the law. If you don’t have insurance, it can affect the type of claims you are eligible to make as well. The following table lists the penalties for driving without insurance by state.

StateSuspensionFineOther
AlabamaSuspension with $200 reinstatement feeUp to $500
AlaskaLicense suspension for 90 days
ArizonaLicense/registration/license plate suspension for three monthsAt least $500
ArkansasSuspended registration/no plates until proof of coverage plus $20 reinstatement fee$50 to $250Court may order impoundment
California$100 to $200 plus penalty assessmentsCourt may order impoundment
ColoradoLicense suspension until you can show proof to the DMV that you are insuredAt least $500Four points against your license. Courts may add up to 40 hours community service
ConnecticutSuspended registration/license for one month (show proof of insurance) with $175 reinstatement fee$100 to $1000
DelawareLicense/privilege suspension for six months$1500 minimum fine
FloridaSuspension of license and registration until reinstatement fee is paid and non-cancelable coverage is secured; $150 fee for first reinstatement
GeorgiaSuspended registration with $25 lapse fee and $60 reinstatement feePay any other registration fees and vehicle ad valorem taxes due
HawaiiEither license suspension for three months or a required nonrefundable insurance policy in force for six months$500 fine or community service granted by judge
IdahoLicense suspension until financial proof$75
IllinoisLicense plate suspension until $100 reinstatement fee and insurance proof
IndianaLicense/registration suspension for 90 days to one year
IowaRemoval of plates and registration possible when pulled over without insurance and reissued upon payment of fine or completed community service, proof of insurance, and $15 fee$500 if in accident; Otherwise $250.
Or community service in lieu of fine
Possible impoundment
Kansaslicense/registration suspension; reinstatement fee: $100$300 to $1000Confinement in jail up to six months instead of or in addition to fine
KentuckyLicense plates and registration revoked for one year or until proof of insurance is shown$500 to $1000Up to 90 days in jail instead of or in addition to fine
LouisianaIf in car accident, fine plus registration revoked and driving privileges suspended for 180 days$500 to $1000
MaineSuspension of license and registration until proof of insurance$100 to $500
MarylandLose license plates and vehicle registration privileges; Pay a restoration fee of up to $25 for a vehicle's registrationPay uninsured motorist penalty fees for each lapse of insurance — $150 for the first 30 days, $7 for each day thereafter
Massachusetts$500 to $5000Imprisonment for one year or less instead of or in addition to fine
MichiganLicense suspension for 30 days or until proof of insurance$200 to $500
$25 service fee to Secretary of State
Imprisonment for one year or less instead of or in addition to fine
MinnesotaLicense and registration revoked for no more than 12 months$200 to $1000Community service possible instead of fine; 90 days imprisonment instead of or in addition to fine
MississippiDriving privileges suspended for one year or until proof of insurance $1000
MissouriSuspended until proof of insurance with $20 reinstatement feeFour points against driving record; Driver may be supervised
Montana$250 to $500Imprisonment for no more than 10 days instead of or in addition to fine
NebraskaLicense and registration suspension; reinstatement fee of $50 for eachProof of insurance to remain on file for three years
NevadaRegistration suspension — until payment of $250 reinstatement fee $250 to $1,000 depending on length of lapseDepending on circumstances, an SR-22 (proof of financial responsibility) if lapsed more than 90 days
New HampshireNot a mandatory insurance state. Proof of insurance may be required as the result of a conviction, crash involvement, or administrative action. If you are required to file proof of insurance and vehicles are registered in your name, you will be required to file an Owner’s SR-22 Certificate of Insurance.
New JerseyLicense suspension for one year$300 to $1000Pay surcharges for three years in the amount of $250 per year
New MexicoLicense suspensionUp to $300Imprisoned for 90 days instead of or in addition to fine
New YorkRegistration suspension equal to time without insurance; License suspension equal to registration suspension if without insurance for 90 daysUp to $1500 if involved in accident plus $750 civil penaltyInstead of suspension, option to pay $8/day up to thirty days for which financial security was not in effect, $10/day from the thirty-first to the sixtieth day $12/day from the sixtieth to the ninetieth day and proof of security is provided; up to 15 days imprisonment in addition to or instead of fine
North CarolinaRegistration suspension until proof of financial responsibility but 30-day suspension if in car accident or knowingly driving without insurance; $50 restoration fee plus license plate fee$50
North DakotaSuspension until proof of insurance is providedUp to $150030 days imprisonment instead of or in addition to fine; 14 points against license; proof of insurance must be provided for one year; license with a
notation requiring that person keep proof of liability insurance on file with the department. The fee for this license is $50, and the fee to remove
this notation is $50
OhioLicense/plates/registration suspension until requirements are met and $100 reinstatement fee is paidMaintain special high-risk coverage on file with the BMV for three to five years; if involved in an accident without insurance, all above penalties and a security suspension for two plus years and an indefinite judgment suspension (until all damages are satisfied)
OklahomaLicense suspension with $275 reinstatement fee $250Jail time up to 30 days; police can seize license plates and assign temporary plates and liability insurance — in effect for 10 days and can also impound the vehicle. The cost of the temporary coverage is added to the administrative fee and any fines paid for plates to be returned. If car impounded, owner must also pay towing and storage fees
OregonIf involved in accident — at least a one year license suspension$130 to $1000 ($260 is the presumptive fine)Proof of financial responsibility required for three years
PennsylvaniaRegistration suspended for three months (unless lapse was for less than 31 days and vehicle not operated during that time); $88 restoration fee plus proof of insurance required to get it back$500 civil penalty fee is optional in lieu of registration suspension plus $88 restoration fee — can only use this option once within a 12-month period
Rhode Island
License and registration suspension up to three months; reinstatement fee: $30 to $50$100 to $500
South Carolina
License/registration suspended until proof of insurance plus $200 reinstatement fee$100 to $20030 days imprisonment instead of fine
South DakotaLicense suspension for 30 days to one year$10030 days imprisonment instead of or in addition to fine; filing proof of insurance (SR-22) with the state for three years from date of conviction. Failure to file proof will result in suspension of vehicle registration, license plates, and driver license
TennesseeOnly if fee is unpaid$25 within 30 daysPay $25 coverage failure fee within 30 days of notice; if not paid, then an additional $100 coverage failure fee with suspension or revocation of registration plus reinstatement fee of no more than $25
Texas$175 to $350pay up to a $250 surcharge every year for three years (may be reduced with certain requirements)
UtahLicense suspension until proof of insurance (maintained for three years) and $100 reinstatement fee$400
VermontLicense suspended until proof of insuranceUp to $500
VirginiaMay pay $500 Uninsured Motorists Vehicle fee to drive without insurance at your own risk. If this fee is not paid in lieu of insurance, all driving and vehicle registration privileges will be suspended until a $500 statutory fee is paid, proof of insurance is filed for three years, and a reinstatement fee (if applicable) is paid
WashingtonUp to $250
Washington D.C.
West VirginiaLicense suspended for 30 days with reinstatement fees, unless there's proof of insurance and $200 penalty fee$200 to $5000
WisconsinUp to $500
WyomingUp to $750Up to six months imprisonment
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What happens to my car insurance when I sell my car?

So the moment has finally come, and you’ve sold your car. You’ve handed over the necessary documents, gave over your license plates (if required by state), and the vehicle is no longer in your possession. So what should you do about your insurance after selling your car? When selling a car when do you drop insurance?

When you finally sell your vehicle, it becomes your job to contact your insurer to let them know that the ownership shifted to elsewhere — the DMV won’t do that on your behalf. So how do you let the DMV know you sold your car? Contact your local DMV and ask to speak to a representative, or check out the DMV website online for your state as regulations vary from state to state.

And if you simply stop making payments without official canceling with your insurer, that could have a negative impact on your payment history.

Furthermore, a bill of sale must be signed so that your car insurance will no longer protect the new owner. A bill of sale 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.

So can you keep insurance if you sell your car? If you’re living in a major city, for instance, where public transportation is ample and driving just isn’t convenient anymore, then canceling your insurance during this time would be a safe bet. But let’s say you plan on driving again or have your eyes on a different car, you might want to wait a bit before giving your insurance company the ax.

Keep scrolling to learn more.

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Can you cancel car insurance when the vehicle is officially sold?

If I sell my car, can I cancel the insurance? What happens when you cancel car insurance? After the release is filed, you might be tempted to rush and cancel your policy so that you no longer receive premium notices. Again, 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 open and proof of car insurance. 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. So can you keep your insurance if you sell your car to keep those discounts?

If you keep your policy active with minimum coverage car insurance while you look, you can still receive these great discounts. Make sure to research the three most useful car insurance coverage options.

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 none of these reasons apply to you or if you’re not looking to buy a new car, the answer to the question, When should I cancel the insurance on the car I’m selling is: after it’s sold.

Is there a car insurance refund after selling my car?

So you’ve sold your car and canceled your car insurance policy. Perhaps you’ve found a cheaper insurer, or you no longer need coverage because you are moving out of state or are older and are no longer driving. It’s not to start looking at the possibility of a refund — in fact, it is a wise thing to pursue.

Let’s say you’ve paid your annual premium and cancel your coverage early. You’re probably wondering, “Do I get an insurance refund if I sell my car?” In this case, you may be.

If you’re paying monthly, for example, you may be less likely for a refund.

However, let’s say you cancel mid-billing cycle — in that case, you might receive a refund from your insurer because you paid for the entire month.

You might be wondering, “are there any fees associated with canceling my policy?” If you cancel pretty early, let’s say, the first couple of weeks, then you might be charged a fee. The longer you stay with the company, the more unlikely you are subject to fees, however, if you are, it would simply be subtracted from the refund.

So when would be the best time to cancel? Usually, as soon as possible. That way, you will most likely get a refund from the insurance you are no longer using.

Canceling before your next cycle, or your renewal would definitely be ideal in this case.

So 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.

Can I make a car insurance claim after selling my car?

So let’s say for whatever reason, you didn’t make a claim on a car that you recently sold. Is there a deadline to file a car insurance claim?

Most insurers will suggest that you file “promptly,” as soon as possible. But what if you were confused about whether or not you could pursue an accident on your old car, and you want to try to get reimbursed for medical bills or costs you put into fixing your car.

According to NOLO, you can file a claim as long as you are an existing policyholder.

So let’s say you’ve sold the car, but you haven’t canceled insurance — this would allow you to file a claim on your policy. If you cancel your insurance, however, you are no longer a policyholder for the vehicle. And in most cases, you wouldn’t have a non-owner policy after you sell your vehicle. So, in that case, you wouldn’t be able to make a claim after you sell your car insurance.

As a general rule of thumb, when the incident occurs, it’s always best to follow up with your insurance carrier as soon as possible. The longer that you wait, the more room the insurance carrier has to deny your insurance claim.

And if you were wondering whether or not you can cancel your insurance after a claim, you can absolutely do so.

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

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Frequently Asked Questions: Canceling Car Insurance When You Sell a Car

Still have questions about selling a car and your insurance? We’ve got answers.

#1 – What is the safest way to sell a car privately?

Generally, you will get more money for your car when you sell privately. Just be cautious about allowing test drives. Go along with anyone that wants to test drive your car and take a safe route. If you’re selling a car and nervous about being alone, ask a friend or family member to come over when potential buyers are arriving.

#2 – What happens if I forgot to cancel car my insurance before renewal?

If you sold the car but forgot to cancel before renewal, most insurance companies will backdate the cancelation. You will have to provide proof that it was sold and on what date to have it removed.

#3 – What if I am selling my car to the insurance company?

If your car has been totaled, the insurance company essentially buys it from you and gives you a settlement check. They will then deal with the wreck of the car. If you’re using the check to buy a new car, you can replace the old one on the policy with that new one. If not, you can cancel the policy as soon as the settlement is complete.

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