Selling a car takes a bit of work, and that work doesn’t stop after you complete the sale. There are still a few things you typically have to do, such as notifying your state’s department of motor vehicles (DMV) and completing transfer-of-ownership paperwork. That takes your name off the vehicle’s title so that the buyer can get one in their name.
Another step is to call your insurance company to cancel the policy on the car. That way, you won’t be paying for insurance on a vehicle you no longer own.
Learn when you should notify your insurance company, whether you’re eligible for a refund on any unused premiums, and what to expect during the insurance-cancellation process.
When Should You Cancel Your Insurance After Selling Your Car?
Once you have officially sold your car, it’s time to sign its title over to the buyer and complete the bill of sale. Then, surrender your plates to your DMV and, finally, cancel your insurance to avoid a break in coverage after selling your car and possible penalties for the time you were uninsured. Ask your agent whether you're due any premium refunds. If so, verify that your address where the refund check will be sent is correct.
Canceling your policy might not be the best step if you’re going to buy a new vehicle soon. Without an active policy in place, you’ll experience a coverage lapse, making you more likely to pay higher rates when you start the new policy. It might be better to get non-owner car insurance while you wait to buy the next car—thereby maintaining continuous coverage—or replace the sold vehicle under your current policy with your new one, if you have it.
Even though you have sold your car, it still belongs to you on paper until you submit a release-of-liability form to your DMV. Until then, you may be responsible for any car-related liabilities that arise.
Don’t Cancel Your Policy Too Early
Once you decide to put your car on the market, it’s tempting to cancel your insurance policy right away to save money. However, that is a mistake.
All states require you to show financial responsibility, typically in the form of an active insurance policy, for cars on the road. You could be breaking the law by driving your vehicle without a policy or letting someone else test-drive it without coverage for the vehicle.
Because car insurance usually follows the car instead of the driver, you’re financially responsible for any damage resulting from a wreck that a test-driver causes. That’s partly why your lender might also require collision and comprehensive coverage until the car is paid off, or the transfer of ownership is complete.
While you don’t want to cancel your policy too early, you don’t want to cancel it too late, either. The buyer may establish a policy on the car while yours is still active, leaving two auto policies in place for the same car. The insurance companies could be seen as trying to profit from the two policies, a practice that is legally viewed as fraud.
What to Expect When Canceling an Insurance Policy
If you decide to cancel your policy, you’ll likely have to submit a written cancellation request to your insurer using one of the company’s forms. With some insurers, you can simply cancel by phone or mailed letter or in person, but you might not be able to do so online.
Take the time to review the cancellation steps outlined in your policy, or speak to your agent to know what you need to do. Keep your policy number and a copy of your bill of sale handy, as you may need to provide them. Here’s how the cancellation process may look:
If you cancel by phone, call your agent directly. Let them know that you sold your car and would like to cancel your policy.
If you cancel by mail, write a letter that includes the following information:
- Your name and contact information
- Your policy number
- The date you’d like the coverage to end
- Your signature
Mail this letter and a copy of your bill of sale to prove that you have sold the car.
Remember that mailed requests can take some time to arrive at the company and get processed, so if you want to cancel the policy immediately, it’s better to use another method.
If you cancel in person, take a copy of your bill of sale to your insurance agent’s office, then ask to cancel your policy directly.
Stopping payment of your insurance premium is not the same as canceling a policy. You must communicate with your insurance company that you want to cancel or replace a vehicle in your policy so that the policy doesn’t automatically renew.
Some insurance companies don’t charge a cancellation fee when you discontinue your policy early, but some do. You can ask your agent or read the terms in your policy to see whether you’ll need to pay.
There are two common types of cancellation fees. The first is a flat rate, and the second is known as a "short rate." When you cancel on a short-rate basis, the insurance company gets to keep an additional percentage of your prepaid premium. A common amount for a cancellation fee is 10% of the remaining amount.
Can I Get an Insurance Refund When I Sell My Car?
If you cancel your insurance policy before it expires, you can request a refund of the unused portion of the premium. Keep in mind that cancellation fees may be taken from the refund, so it could be less than you expect.
Some states have laws regarding the timeline of refund payments. For instance, in New Jersey, you can expect your refund within 60 days. In Florida, insurance companies have 30 days to issue your refund. Your insurance agent can let you know whether you’re eligible for a refund, and, if so, when you can expect it.
Frequently Asked Questions (FAQs)
Why would I have to pay a fee to cancel car insurance?
Some insurance companies charge a cancellation fee if you cancel your policy early. This could be a flat fee or a percentage of your remaining premium.
Do I have to tell the DMV when I cancel car insurance?
Insurance companies typically must notify the state when insurance is canceled for a car. Some states ask that you also inform them of the cancellation. Check with your local DMV, or ask your agent to find out what’s required.
Do I have to cancel my car insurance when registering a car as “non-use”?
When you have a car you no longer drive, you may be able to register it as “non-use” in your state, or surrender your license plates. Once you do that, you may be able to cancel your insurance, because you’re not required to keep a policy on a car that’s not in use, but your lender might require certain insurances if you’re still making payments.