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When To Cancel Insurance After Selling Your Car

Hanna Kielar5-minute read
April 18, 2022

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Canceling your car insurance at the right time is an integral part of selling your vehicle. If you cancel too early, you could be at risk for fines or even face a license suspension. However, if you cancel too late, you’re unnecessarily paying insurance on a car and risking liability.

If you’re wondering when the right time to cancel insurance after selling a car is, there’s a key window for insurance coverage cancellation. More than choosing the right time to cancel, you should also understand your state laws and when to go to the department of motor vehicles after canceling insurance.

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Why You Should Cancel Your Auto Insurance After Selling

You may be surprised to realize how far into the car selling process you'll be before you can safely cancel the insurance. Cancellation should happen after you've sold your car, signed over the title to the new owner and completed a bill of sale. Some states (but not all) require one extra step: submitting a Notice of Release of Liability to your state's department of motor vehicles.

Many people mistakenly think that you're safe to cancel your insurance as soon as you sell your car. However, car insurance cancellation laws state that you need to have coverage on your car as long as the vehicle is registered in your name, even if you're not driving it.

That means you’re going to have to ensure the car becomes registered in the new owner’s name by the time of the effective date of insurance cancellation. Failure to have active car insurance while being the registrant on a car can result in fines, vehicle impoundment, towing fees, storage fees and even license suspension.

There are two significant reasons to cancel your insurance as soon as legally possible: liability and unnecessary expense.

  • Liability: Insurance is attached to a car, not a person. So, if your insurance remains active, the buyer can drive the vehicle under your policy. If they get into an accident, your insurance can be liable for the coverage.
  • Unnecessary expense: Paying for monthly insurance on a car you're not driving is a waste of money, and it can cost you even more in the long run. If the buyer gets in an accident, your insurance premiums might go up, and you'll have to pay for deductibles and any extra costs not covered by your policy.

When You Should Keep Your Policy

Even with a gap in car ownership, it may be beneficial to keep your car insurance active – especially if you're happy with your current rates. For example, you may have a loyalty discount with your insurance providers after years of coverage. If this discount lapses when you cancel and you plan to get a new car soon, it might make financial sense to keep your policy active.

Consider the future savings you’re losing out on if you cancel your insurance, only to find you need to reopen a policy in 2 months. You may save a few hundred dollars during your insurance gap, but you’d give that back and then some with a new, probably higher-cost policy. In this situation, it's worth keeping the plan active.

That said, maintaining a policy versus maintaining vehicle coverage is not the same.

You can maintain a policy, and those rates, by calling your provider and requesting a "non-use policy," where you simply remove your car from your insurance policy. Your insurance information remains the same until you purchase a new vehicle and add vehicle coverage to the policy.

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What To Do Before Canceling Your Policy

You should cancel your insurance policy after selling your car, but not before you take the necessary steps to legally protect yourself and release liability.

Call Your Insurance Agency

Make sure you call your insurance agency to get policy-specific information on the best way to cancel your insurance. Every insurance agency operates differently, so it's best to get instructions right from the source.

Gather Legal Documents For The Sale

Showing up with the proper paperwork you need to sell a car at the time of sale inspires potential buyers’ confidence and protects you from liability.

Here are the recommended documents required by the DMV to cancel registration and insurance:

  • Title transfer: A title is an official document showcasing who legally owns the vehicle. When you sell a car, you must transfer the title to the new owner. The seller typically signs the title transfer which gives the buyer the authority to have a new title issued in their name.
  • Bill of sale: A bill of sale is a legal document that outlines the details of your vehicle transaction with a buyer. The bill of sale includes essential information such as the seller and the buyer's identifications, vehicle identification details, the purchase price and even forms of payment (lump sum versus installment payments).
  • Odometer disclosure: An odometer disclosure is a legal document that puts the current mileage in writing when the car is sold. If an accident happens after the stated odometer reading, you’re not liable. This document also legally promises the odometer hasn't been rolled back.
  • Notice of Release of Liability: In some states, a Notice of Release of Liability is necessary when selling a vehicle. This notice lets the DMV know that you're no longer responsible for parking violations, traffic violations, or any criminal actions associated with the car after the sale. You can only get a Notice of Release of Liability at your local DMV.

Alert The DMV To Your Vehicle’s Sale

In many states, you'll need to go to the DMV to cancel your car's registration after selling a car. You may need to hand over your old license plates and bring in a VIN for your vehicle description and verification, an inspection certificate and a service record. Some states also require you to sign a Notice of Release of Liability.

You shouldn't cancel your insurance until you've canceled your registration with the DMV. Canceling with the DMV can sometimes have an associated cost. For example, in New Hampshire, there’s a $25 fee to cancel the registration.

The process varies significantly for each state, so check your local DMV to determine the local procedure. Some DMVs even let you complete this process online or through the mail.

The Bottom Line: Time Is Money And So Is Timing

If you’re selling a car for the first time, you’re already doing a great job by researching the proper steps to take. Selling a car may seem straightforward, but it’s a large transaction with important legal considerations to be aware of.

One of the key factors to keep in mind during the car selling process is the timing of canceling your auto insurance. Canceling too early or too late can have serious ramifications that you want to avoid. Keep in mind the checklist of items you need to take care of before you reach out to your car insurance company for cancellation.

And, don't forget, in some situations, keeping your insurance policy active may be the cheaper option in the long term. Make sure you know how to cancel your registration on your car, too.

Learn more about how you can save even more money by getting preapproved for a car loan and comparing loans before buying your next car.

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What's your car worth?

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Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto℠, RocketHQ℠, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.