If You Sell Your Vehicle, Do You Have to Tell Your Insurance Company?

Forgot to cancel insurance
••• Getty Images/KidStock

Many people think that once they sell their vehicle, the DMV is informed of it and if the name on the pink slip officially changed, then the insurer must know about it, too. It certainly seems to work the other way around, right? Drop your car insurance and the DMV will be notified almost instantaneously.

However, it doesn't work that way. The state is not going to inform your insurance company that you've sold your car. That is your responsibility. And if you don’t do so, you might end up paying for a service you never use—or worse, someone else’s accident.

What to Do When You Sell Your Car

If you sell your car and aren’t getting a new one for whatever reason, you should immediately contact your insurance company to cancel your policy.

If you are buying a new car, your old insurance will likely cover your new car for a short period of time, but you should also contact your insurance company in order to add your new vehicle to your existing policy or purchase a new policy.

Getting a Refund

So you've sold your vehicle. Four months later, you get your policy renewal notice in the mail. And it suddenly dawns on you that you never told your insurer that the car is long gone. What do you do?

For starters, get on the phone and let them know. Virtually every insurance company in business is going to require a written statement from you instructing them to cancel your policy. They will probably direct you to their website where you can fill out a form, print it out and send it in. Once they have it, they will cancel your policy.

Next, ask for a refund of the unused part of your premium payment and ask your insurer to backdate the cancellation to the date of sale. Here's where your policy language and the laws of your state come into play. One may mandate that your insurer must issue you a refund. Then again, they may not. If they do, then canceling your policy should be enough. If they do not, you still may be in luck. You should always ask for a refund even if it is not required.

There's a good chance the insurer will issue you one anyway. As mentioned above, insurers want to keep their customers happy because a happy customer is a repeat customer. They know that there's a good chance you will be in the market for auto insurance again sometime in the future and giving you a reason to use them is worth more than keeping the unused part of your premium payment.

You will most likely have to furnish your insurer with a copy of the vehicle sales agreement or pink slip to prove the date of sale, but this very small hassle could save you a pretty penny. And as you know, "A penny saved is a penny earned."