Can I cancel my insurance if I sold my car?

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In a nutshell...
  • Do not cancel an auto insurance policy before the vehicle ownership/registration is transferred to the buyer
  • Research local DMV rules and requirements regarding the proper transfer of ownership
  • Consult with the insurance provider regarding when to cancel the policy

The time to buy a new car has arrived. Buying one car often means selling a currently-owned one.

The vehicle for sale may be relatively new or one boasting more than 150,000 miles. Regardless, the model is up for sale and this means certain responsibilities are required.

The seller may have paid up a full year’s worth of premiums, months might be remaining, but a sale to someone else is planned. Should the owner cancel the auto insurance policy immediately?

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Title, Registration, and Ownership

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Until ownership of the vehicle is officially transferred to the buyer, the vehicle belongs to the owner.

He/she needs to keep insurance in place to provide a level of protection when paperwork is not in order.

Cars still registered in the name of the seller after the buyer picks up the car might find themselves in trouble if the buyer doesn’t immediately change the registration.

Follow the state’s requirements to the letter in order to avoid any problems.

In New Jersey, for example, the buyer may be required to procure a corpcode number when transferring ownership with the DMV.

Of course, the buyer also must complete his/her end of the registration process in order to become the owner. Make no assumptions about how to properly transfer vehicle ownership.

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Auto Insurance Cancellation Mishaps

An owner may decide to cancel an auto insurance policy right away because “the buyer is coming in a week.” No one is driving the car. The vehicle is sitting in the driveway. What could go wrong in a week?

Say a thief chooses to steal the car. A sale can’t go through if the car is gone. Don’t dismiss natural disasters or other mishaps, either.

Without an active policy, no comprehensive insurance claim can be filed. The full loss in on the shoulders of the owner.

And who said no one will drive the vehicle? A family member or other named insured person, thinking the vehicle’s insurance remains in effect, chooses to take the car out for a short drive.

The short drive leads to a serious at-fault accident. Any resultant civil action goes forth without the safety net provided by auto liability coverage.

The cancellation of an underlying auto insurance policy means the voiding of any connected umbrella policy. So, two insurance policies and their protections are gone.

Take all these hypothetical scenarios as warnings not to cancel an insurance policy prematurely.

Contact the Insurance Company

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Rather than make poorly-advised decisions about when, where, and how to cancel the policy, call the insurance company prior to taking action.

The insurance company’s representatives are there to advise on any matters related to an insurance policy.

The representative may even suggest keeping the policy in place until all registration documentation is officially filed and processed with the DMV.

Additionally, the insurance representative could assist the seller with purchasing a nonowner insurance policy.

Until the seller buys a new car, he/she may be reliant on borrowing someone else’s or using a rental.

A non-owner insurance policy provides liability protection or, possibly, personal injury protection when the insured gets behind the wheel of a car.

The Forthcoming Refund

The insurance company will doubtfully keep the remaining balance on any prepaid premiums. The balance from the date of cancellation to the end of the policy’s term should be converted into a prorated refund.

Obviously, if the policy is being paid in installments, future installments won’t need to be made.

If the policyholder is entitled to a nominal refund, he/she should receive it without delay.

Remember, the insurance company wants the customer’s repeat business when a new car is purchased. Keeping the customer pleased during the initial cancellation helps with that goal.

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