If you’re selling a car or have ever sold one, you know there are many questions that can arise when it comes to legal ownership and insurance on the vehicle being sold. Additionally, to save money, most people don’t want to insure a vehicle a second longer than they must.

Here, we’ve covered some of the most common questions to help ensure (and insure) your peace of mind while selling your car.

Key Highlights
  • If you don't want to be penalized for no car insurance, do not cancel your policy until the car is officially sold.
  • It's illegal to drive a car without insurance even if it's a test driver, you are putting yourself at risk for financial problems if there is an accident.
  • If you want to drop insurance from a car you are selling, then you need to turn in your registration and plates and not let anyone drive the car.
  • You can cancel your auto insurance if your car has been officially sold and the DMV confirms it is now in the new owners name.

When should I cancel my insurance on the car I’m selling?

Here’s a scenario:

You’ve decided to drop car insurance coverage on a car you’re selling. The person you are in the process of selling it to wrecked the car, and now your license is being suspended because the car was still in your name. What could you have done differently to avoid this?

If you had already officially sold the car to the person driving, then there may be steps you can take to keep your license from being suspended. If the title was signed over to the new owner at the time of the accident, you may have some defense in keeping your license.

If you hadn't yet sold the car to the other party and the vehicle title was still in your name, then it's doubtful that you can keep your driver's license from being suspended.

To keep yourself from being penalized for no car insurance, don't cancel your car insurance policy until it's officially sold and even then, first check with your Department of Motor Vehicles (DMV) to see if the person has placed the car in their name.

If you did a notification, then get a copy of the form to see if providing that along with a copy of the bill of sale to the DMV, showing that the car was sold before the person was in the accident, will convince the state to drop the penalties against you. 

If they don't, you may want to seek legal advice on other options you may have to keep your license valid.

Does insurance cover a person test-driving my car?

If you’re selling a vehicle, there is a high chance that potential buyers will want to take it for a test drive.

Car insurance follows a car, so this means it was your responsibility, as the car owner, to carry insurance on it while it's still in your name. Whether or not the person test-driving has their own insurance is irrelevant in this case.

If you cancel insurance on a vehicle that is being driven, even by a test driver, you’re most likely breaking the laws of your state and are also putting yourself at high risk of financial hardship if there is an accident.

Can you sell a car without insurance?

What if you’re selling a car that no one drives and so you’ve already cancelled coverage?

Even if you aren't using a car that you have up for sale, you need to keep car insurance (and registration) valid on it so that anyone interested in purchasing the car can test-drive it.

If you want to take insurance off of a car, then you would need to turn in your registration and plates and not have anyone at any time drive the car, or else you can face penalties for allowing your uninsured car to be driven.

How do I cancel my car insurance?

If your car has been officially sold and the DMV confirms it is now in the new owners name, it is time to cancel your auto insurance.

Most of the time, cancellation is as simple as contacting your insurance company. They will typically request you sign a cancellation agreement and if you’ve prepaid, they’ll issue you a refund.

To learn more, check out our guide on how to cancel your car insurance policy.

Don’t forget that you’ll still need car insurance for any other vehicles you own. Car insurance doesn’t have to break the budget.

There are many options available for cheap car insurance if you are looking to save some money.

When can I get a car insurance refund after selling my car?

Your state law may have a specific timeline for when you will receive your insurance refund. Check with your insurance company they can tell if and when the refund is due.

When you cancel your insurance policy before it expires, the insurer will give back any unused portion of the premium. Remember that they may charge cancellation fees so you might not get the amount you expected.