What Happens to Car Insurance When You Sell a Car?

It may be tempting to cancel your insurance when selling your car, especially if you’ve already purchased a new vehicle. But to legally drive in almost every state (except New Hampshire and Virginia), you need to carry at least some car insurance. This is especially relevant if you’re selling to a private buyer, since they’ll most likely want to take the car for a test-drive.

You should also think twice about canceling your policy if you’re still driving the car you’re looking to sell. Keeping it protected can help you save money and repair damage that might make potential buyers walk away. A collision policy will cover damage to your car if you’re hit in an accident, and comprehensive insurance will pay for repairs due to falling objects or other non-collision damage.

Types of Car Insurance

Consider what the six main types of car insurance cover:

• Liability insurance: Covers property damage and bodily injury to another party if you’re at fault for a car accident
• Collision insurance: Covers damage to your car after an accident, regardless of who’s at fault
• Comprehensive insurance: Covers repairs to your car due to damage from theft, vandalism, natural disasters and other non-collision incidents
• Personal injury protection (PIP): Covers medical expenses, lost wages and funeral costs for you and your passengers after an accident
• Medical payments coverage (MedPay): Covers medical bills and funeral costs for you and your passengers after an accident
• Uninsured/underinsured motorist coverage (UM/UIM): Covers property damages for you and injuries to you and your passengers if you’re hit by a driver who doesn’t have car insurance or doesn’t have enough

In the sections below, we’ll take you through the eight-step process of selling your vehicle.

#1 Gather Documents

When you start the process for selling your car, you’ll need to gather all of your vehicle information in one place. Organize documents that include the following:

• Vehicle identification number (VIN)
• License plate number
• Make, model and year of vehicle
• Accident history
• Vehicle title
• Vehicle registration

#2 Learn How Much Your Car Is Worth

Use car value guides like Kelley Blue Book, J.D. Power and Edmunds to estimate your car’s value. Many of these guides have easy online tools to help you figure out how much your car is worth. You can choose to find the trade-in value or the private seller value depending on how you want to sell your vehicle.

#3 Prepare Your Car for Sale

If you’ll be selling your car online, take detailed, well-lit photos. If you’re trading your vehicle in, you may not need to take photos. Either way, it’s a good idea to wash your car and vacuum the interior before putting it up for sale.

#4 Decide How You Want To Sell Your Car

There are three main ways to sell your car: list it for a private sale, sell it to an online dealer or sell it to a local dealership. Each method has its advantages, but they differ based on your needs.

#5 List Your Vehicle for Sale

If you’re selling to a local dealership, this step won’t apply to you. If you’re selling your car to a private buyer, you’ll need to create a post on an online marketplace like Craigslist. To sell to an online dealership like Carvana, you’ll need to provide a few details about the vehicle, such as the odometer reading.

#6 Work With the Buyer

This can be the lengthiest part of the process. If you’re selling privately, you’ll likely need to set up times for potential buyers to inspect the car and take it for test-drives.

Similarly, you’ll have to make a pickup or in-person appointment to sell to an online dealership. When selling to a local brick-and-mortar dealership, you’ll need to bring the car in. You may not have a lot of wiggle room to negotiate a trade-in or sale with a traditional dealer.

The transaction is complete when you sign the car’s title over to the new owner. Not all states require a bill of sale, but it’s best to have one either way.

#7 Get Paid for Your Vehicle

Online and local dealerships usually send payment within a few days. Getting paid from a private buyer may require going to a bank branch. If you haven’t paid your auto loan off or the buyer is using a private-party auto loan, the process can be a little more complicated. If your sale price is less than what you owe on your loan, you’ll have to pay your lender the difference to get the title signed over to the new owner.

#8 Complete the Paperwork

Once the car is in the new owner’s possession, you’ll have to complete paperwork acknowledging the sale. In some states, like California for instance, you’ll also need to complete a Notice of Transfer and Release of Liability. This document, also known as a Notice of Release of Liability, lets your state’s department of motor vehicles know you’re no longer responsible for the car.

Most dealerships, both online and traditional, will complete much of this for you. If you sell to a private buyer, you’ll need to complete this step on your own.

You can cancel your car insurance policy after you’ve signed the title and the bill of sale and, if applicable, completed the Notice of Transfer and Release of Liability.

If you forget to cancel or neglect to fill out the right paperwork, you may still be responsible for paying the insurance premium without realizing it. This could lead to a lapse in coverage if your old insurer cancels your policy for nonpayment. A new insurer will take that as a sign of risk.

How To Cancel Your Auto Policy

Every company has its own cancellation policy, so check with your insurance agent about how to do it.

You can cancel car insurance at any time, but some providers charge cancellation fees. If that’s the case, check to see when your policy term ends. You may want to time the sale of your vehicle with your policy’s expiration.

Here are a few things to keep in mind when canceling your car insurance:

• Don’t cancel your insurance until you have a new policy in effect.
• Don’t simply stop paying your premium.
• Follow up with the provider to make sure the cancellation was completed and that you receive any refund you may be entitled to.

Should I Keep My Car Insurance After Selling My Car?

Whether you should keep a car insurance policy after selling your car depends on how much you think you’ll be driving. If you live in a city or urban area with good public transportation, you may decide not to get a new car. In that case, you may not need car insurance.

If you decide not to replace your vehicle but will drive occasionally, consider getting non-owner car insurance. This gives you liability coverage for driving a vehicle you don’t own, such as a rental or a friend’s car. Plus, if you later decide to buy a car, you won’t have a lapse in coverage. This helps you avoid the higher insurance costs drivers get for not having continuous coverage.

There are a few reasons to keep your insurance coverage while trying to sell your car. Forty-eight states require car insurance, so if your car isn’t covered, potential buyers may not be able to test-drive it legally.

Also, keeping a collision or comprehensive policy could save you from having to pay large repair bills out of pocket. Any damage will decrease your car’s value, and paying to repair it will cut into how much you can expect to receive from a sale.

Top Auto Insurance Recommendations

If you’re considering canceling your coverage when you sell your car, we recommend getting a new policy so you don’t have a lapse in coverage on your record. Compare free quotes from at least a few providers, like USAA and Liberty Mutual, before choosing one.

Source: Automoblog

USAA: Best for Military Members

According to Quadrant Information Services, USAA has some of the lowest auto insurance rates on average. The company is also known for its variety of optional coverage in addition to the six standard types of insurance. USAA offers non-owner auto insurance, which can be helpful if you decide not to replace the car you sell.

USAA insurance is only available to members of the military, veterans and their spouses and children.

Read more: USAA insurance review

Travelers: Best for Most Drivers

Travelers is our top-rated auto insurance company due to its affordable rates, variety of coverage options and excellent customer reviews. Drivers can also utilize Travelers’ IntelliDrive^® telematics program to save money on car insurance premiums.

Read more: Travelers insurance review

Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best car insurance companies. We collected data on dozens of auto insurance providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the insurers that scored the most points topping the list.

Here are the factors our ratings take into account:

• Cost: Auto insurance rate estimates generated by Quadrant Information Services and discount opportunities were both taken into consideration.
• Coverage: Companies that offer a variety of choices for insurance coverage are more likely to meet consumer needs.
• Reputation and experience: Our research team considered market share, ratings from industry experts and years in business when giving this score.
• Availability: Auto insurance companies with greater state availability and few eligibility requirements scored highest in this category.
• Customer experience: This score is based on volume of complaints reported by the NAIC and customer satisfaction ratings reported by J.D. Power. We also considered the responsiveness, friendliness and helpfulness of each insurance company’s customer service team based on our own shopper analysis.

Our credentials:

• 800 hours researched
• 45 companies reviewed
• 8,500+ consumers surveyed

*Data accurate at time of publication.