Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Apr 14, 2022

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Here's what you need to know...

Thousands of vehicle owners sell their cars on the private market every month.

While some individuals prefer the convenience of trading their cars in, consumers who aren’t in a rush can get more for their cars if they list the vehicle in classified ads or online.

One of your obligations is to keep insurance on the vehicle while you’re still the legal owner. Enter your zip code above to get FREE car insurance quotes today!

Insurance is Mandatory in Most States


You must be the legal owner of property to sell it. If you don’t have a claim to the vehicle, you can’t legally transfer ownership to another party.

Being the legal owner also means that you must comply with the insurance laws set by the state where the car is registered.

If you don’t, you will still be held liable for damages that you cause while driving the vehicle but you’ll have to pay for those damages with your own assets and wages.

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How long do you have to keep insurance on a vehicle that you’re selling?

If you’re not planning to drive a car that you have up for sale, it doesn’t mean that you can rush to contact your insurer to cancel the coverage.

If a vehicle isn’t being driven, you’re not at risk of having a liability loss but you are at risk of being penalized for letting your coverage lapse.

According to the state, you must be in compliance with compulsory auto insurance laws for as long as you’re the registered owner of the car.

When you transfer the registration and title to someone else, you can’t be held liable for damages that happen while the car is being operated.

What are the consequences of letting your insurance cancel too soon?


If you request that your insurance is canceled or fail to make your premium payments, you could pay the price when you’re about to finish a sales transaction.

When you have a lapse in coverage, the DMV can suspend the vehicle’s registration. To reinstate the tags you have to pay a fee and show that the vehicle is insured.

Registration fees and other vehicle-related fines assessed by the DMV follow the vehicle and not the vehicle owner.

If you don’t disclose the fees, the buyer could hold you responsible for being dishonest when you signed the agreement and you may be asked to refund the money.

Do you have to keep insurance on a vehicle if it doesn’t have tags?

If you’ve let your tags expire or you have filed the car as a Planned Non-Operational vehicle, the insurance laws work differently.

The state can really only fine you and suspend your vehicle license when the vehicle is registered.

Since the car isn’t registered to be driven or parked on public roads, you don’t have to maintain insurance.

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Drawbacks of Selling a Vehicle Without an Active Registration


You can cut out the insurance expense if you file the vehicle as non-operational, but there are drawbacks to doing this.

If a buyer sees that a car doesn’t have valid registration, they might be skeptical to contact you.

Most people who want to buy a car would like to feel how it drives.

Shoppers who want a fixer-upper might be willing to evaluate a car’s condition in the driveway, but the average buyer wants to test out a car on the road before making a purchase.

When is the best time to cancel your auto insurance?

Don’t call your agent as soon as the buyer drives off with the car. First, submit a Notice of Sale or Release of Liability form to the DMV.

Once you fill out the form, provide a date, and insert the buyer’s information, you can submit the release.

You can even cancel your insurance effective the date of sale on your bill of sale as long as this is the date that you put on the release.

If you don’t currently have coverage, you should buy insurance so that buyers can test drive the car and you can get the best deal possible without facing any penalties.

Enter your zip code below for FREE car insurance quotes today!