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 insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Aug 10, 2021

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Here's what you need to know...

  • If you’re selling a vehicle, you need to maintain insurance on the car if auto insurance is mandatory and the car has an active registration
  • One of the alternatives to maintaining auto insurance in states with alternative filing options is to post a cash deposit with the DMV or purchase a surety bond
  • If you are selling a vehicle that’s in storage and filed as non-operational, you don’t legally have to have insurance
  • You can’t legally allow potential buyers to test drive your car unless it is insured
  • When a prospective buyer test drives your vehicle, their liability insurance will extend to pay for claims if you don’t have liability insurance or if they are sued for causing an accident

Selling a car privately can be intimidating if you’ve never closed your own sales transaction in the past.

If you no longer have a need for your vehicle or you need to sell it so that you can buy a new one, preparation is crucial. You’ll need to have your registration, title, and insurance in order for a smooth and stress-free transaction.

Enter your zip code in the tool above to compare several insurers for free!

Since a lot of households have more cars than licensed drivers, it’s common for drivers to leave one of their cars parked just in case they need it for a rainy day. Cars that are parked still may need insurance.

Whether or not you’ll need to keep your insurance on a car that’s on the market depends on how you’re selling it. Here’s what you should know before you post your listing.

When are you required to keep insurance on your vehicle?


The state doesn’t come to your home and do audits to see whether or not you’re driving your vehicle. Because of this, when you have a standard registration on your car, you always have to comply with auto insurance laws.

In most states, auto insurance mandatory. So as long as you’re selling a car that’s registered, you must carry liability insurance and all other coverage options required by law.

Auto insurance is compulsory in a majority of states, but there are proof of financial responsibility filing alternatives in some states.

If you don’t want to maintain coverage, you can post a cash deposit through the state treasurer or purchase a surety bond through a licensed bonding company.

Filing alternatives don’t always make sense, especially if you’re planning on selling your car within the next week or month.

Since you have to put up collateral to get a bond and you have to hand over thousands of dollars in cash to make a deposit, it’s better to pay a small amount of money for an auto insurance policy with motor vehicle liability coverage just to satisfy the law.

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What happens if the car that you’re selling is still financed?

If you own a car that you’re still paying off, you’ll face some unique challenges as you sell your car. As a borrower on a vehicle loan, you take custody of the car but you’re not the vehicle owner until the loan has a balance of zero.

Since you still have a loan, you’re required to comply with the terms of your auto loan.

One of the major terms lenders have set for borrowers is that they must purchase full coverage auto insurance.

When you’re listing the car for sale, you still have to maintain the comprehensive and collision on the car so that the lien holder is protected if and when you file any physical damage claims.

If you don’t keep your coverage active, the lender can add insurance to your loan that protects them. This will drive your balance up and can leave a balance even after you use the money that you’ve received from the buyer.

Since the whole balance has to be paid before the title can be transferred, it’s best to keep your insurance active.

What happens if the car is filed as a parked car?


You don’t have to maintain a registration on every car, but cars without a registration still need to be filed as non-operational. To do this, you need to visit your local DMV branch so that you can turn in your plates and get a placard saying the car is on file but can’t be operated.

Selling a car that’s been in storage for quite some time can be difficult. You have to consider some of the problems that can arise and how you can keep the car legal to avoid issues down the line.

When you’re listing the car, be upfront. Let the buyer know the car can’t be driven, what work needs to be done, and what the status of its registration and title are. By doing this, you can cover all of your basis if the buyer tries to sue you.

As long as you fill out all of the proper paperwork and your application has been processed, you don’t need to keep insurance on the car.

It’s an expense that you can cut out when you’re trying to sell the car, but just know that the buyer can’t test drive the car or drive the car away after a sale. Be sure that they have a tow truck or trailer on standby.

What do you need to do so that you’re not held accountable for future losses?

If you don’t take the right steps after you sell a vehicle and it’s out of your possession, you could receive upsetting invoices in the mail.

After the private sale of a vehicle, you need to submit documents on your end that say that the car has been sold and it’s not longer your responsibility.

In most states, the document that you need to submit is called a release of liability. This can be picked up at the DMV or filled out and submitted online. You will need the buyer’s name, address, license number, and the vehicle title information to fill out the form.

You need insurance on any vehicle that’s in your name. How much insurance depends on the vehicle’s age and lien status. Talk to your auto insurance provider about what you need for your particular situation.

Don’t let a prospective buyer test drive an uninsured car. Buy coverage by getting instant quotes on the world wide web, and sell your car without any real issues.

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