If you’re selling a car, you might wonder when you can cancel the insurance. No one wants to pay for car insurance they don’t need, but there are risks to canceling your insurance too soon when selling your car.

Below we’ll discuss how to handle insurance while selling a car and when you can cancel the coverage without risk.

Key Highlights
  • Wait to cancel your policy until the car is officially sold and ownership has been transferred to avoid penalties for lack of insurance.
  • It’s illegal to drive a car without insurance, even if it’s a test drive, and you’re financially responsible if there’s 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 can’t let anyone drive the car.
  • You are responsible for anything that happens with your car until you are no longer the legal owner.

When should I cancel the 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 selling it to wrecked the car, and now your license is suspended because it was still in your name. What could you have done differently to avoid this?

If you have 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 might not be held responsible for the uninsured car.

If you haven’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 prevent responsibility for an uninsured vehicle, don’t cancel your car insurance policy until it’s officially sold and the title has been transferred with the Department of Motor Vehicles (DMV).

Keep copies of all the paperwork, including the bill of sale and title transfer. This evidence will help you prove that you no longer owned the car at the time of the accident. 

Does insurance cover a person test-driving my car?

Potential buyers will want to take a vehicle for a test drive if you’re selling it. Your insurance will cover any driver you have permitted to drive your car. That includes anyone test-driving it.

Car insurance follows the car, so it’s 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.

If you cancel insurance on a vehicle that is being driven, even on a test drive, you’re likely breaking the laws of your state. You’re also financially responsible if there’s an accident.

Can you sell a car without insurance?

What if you’re selling a car that no one drives, and you’ve already canceled the 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, you need to turn in your registration and plates and not have anyone drive the car at any time. There are 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 owner’s name, it is time to cancel your auto insurance.

Most of the time, cancellation is as simple as contacting your insurance company. You can often do this online or over the phone. Provide the company with the date of cancellation based on the date you transferred ownership to the new owner.

To learn more, check out our guide on canceling your car insurance policy.

Will I get a car insurance refund after selling my car?

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 get a different amount than expected.

Your state may have laws regarding how long the insurance company has to issue a refund. If it’s taking too long, you may need to follow up with the company.

— Penny Gusner contributed to this story.

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Contributing Writer

Prachi is an insurance writer with a master’s degree in business administration. Through her writing, she hopes to help readers make smart and informed decisions about their finances. She loves to travel and write poetry.