Selling or Trading in Your Car? Don’t Forget About Insurance Coverage

Coverage for a car you plan to sell or trade

Car insurance can be a significant expense. On average, car insurance costs $147 per month,1 so it can be tempting to cancel your policy early if you plan on selling or trading in your vehicle to save some money. 

However, it's important to hold on to your policy for the following reasons:

• Legal requirements: Car insurance is legally required in nearly every state. At minimum, if you have a car, you'll need a policy that meets your state’s liability insurance  requirements. Even if you don't intend to drive the car, you'll need coverage. In most states, cars must be insured to be registered, even if they're non-operational or not in use. If you drive the car and are pulled over, you could face significant consequences, including license suspensions and fines. 
• Lapse in coverage: If you don't maintain coverage on a registered vehicle, lapsed coverage can cause you to have to pay higher rates later. 
• Damages: If you plan on selling a vehicle and it's driven by a potential buyer and is involved in an accident, you could be on the hook for a portion of the damages. If you don't have active coverage, you could be responsible for those charges out of pocket.

When to cancel your coverage

With car insurance, you can cancel your policy at any time. However, don't cancel too soon! Whether you plan on selling your car privately, selling it to a dealer or trading it in for a new car, wait until the deal is complete. 

Only contact your insurer to cancel the policy after you've received the full payment, completed a bill of sale and signed the title over to the new owner. In some states, you also have to submit a notice of the sale to the department of motor vehicles (DMV); if that's the case where you live (you can find out by visiting your state DMV page ), wait until you submit that notice to cancel your coverage.

Can I keep my coverage if I buy a new car?

When you sell a car and buy a new one or trade in a vehicle for a newer car and have an existing auto insurance policy, you usually have a few days to update your insurance with your new vehicle's details; until that point, your policy applies to the new car. 

However, your current coverage may not be adequate for your new car. For example, if you have liability-only coverage and are financing a new car, the lender will require you to purchase coverage with comprehensive and collision insurance , sometimes referred to as "full coverage policies." And, if you’re purchasing a more expensive vehicle, you may want a car insurance policy that adds these forms of coverage — and adjust your coverage limits — to sufficiently protect the car.

Questions to help get the best coverage

When considering what insurance policy to get for your new car, ask yourself the following questions:

• How much is it to replace the car? If you only have liability coverage with your insurance company, your car isn't covered if it's damaged or totaled in an accident; you have to pay for it entirely on your own. If you have an older, high-mileage vehicle, perhaps bought as a used car, you may be willing to take on that responsibility. But, if you have a newer car that costs well into the five figures, you may need a policy that includes collision and comprehensive insurance. 
• How much do repairs typically cost? Some cars are relatively inexpensive to repair. For instance, Consumer Reports found that Buick, Toyota and Hyundai were usually the cheapest to maintain and repair. By contrast, Volvo, BMW and Infiniti were among the most expensive. If you have a car with higher repair costs, adding collision and comprehensive insurance coverage to your policy — or increasing your policy limits — can be a wise decision. 
• Could you save by switching insurance companies? If you aren't sure what coverage you need, contact an insurance representative to discuss your situation. An experienced agent can help you find the right coverage, and can even help you save money by identifying potential auto insurance discounts . An agent or broker can also help you to compare premiums and coverage options among various insurance providers, which may offer lower insurance premiums than under your current policy. However, before you decide to get a new policy from a different insurer, check on whether the current company will impose a cancelation fee for ending the old one. Some insurance companies impose these, as either a flat fee ($50 is a common amount) or a percentage of the premium for the remainder of the policy’s term.