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 Chris Harrigan

UPDATED: Apr 13, 2022

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Here's what you need to know...

  • Most states require that you have car insurance
  • Every state has their own minimum liability limits
  • Personal liability insurance provides the seller with financial protection

You never know if a car is truly the right one for you until you test drive it. When you are shopping for that perfect model with all of the right features, you will most certainly stumble across options that look great but do not operate great.

While it is only natural to be excited to get behind the wheel and to drive your potential car around the neighborhood, you should familiarize yourself with insurance laws and requirements.

All states have a mandatory insurance law or some other type of financial responsibility law in place that requires drivers to prove that they can pay for damages they could cause in cars that they own.

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What does mandatory car insurance laws say?

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Mandatory car insurance laws are set at a state level. Every state has their own minimum liability limits and possibly other types of coverage options that must be carried by vehicle owners.

Before the state can require you to insure a car, you must have a financial interest in it.

This is established at the moment that you negotiate a sales price, sign a bill of sale and ownership shifts to you.

It is not until you register the vehicle in your name that you will have an insurable interest in the car and be required to cover it.

Anytime before you take possession of the car you do not have to insure it.

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How are vehicles for sale covered?

If you do not have the option to buy insurance on a vehicle that you do not own or do not have an interest in, you might be wondering just how the car is covered.

After all, you do not want to start the engines and drive a vehicle that has no coverage.

You will have peace of mind in knowing that it is the seller’s responsibility to keep active coverage on the vehicle until they no longer own it.

In most cases, the coverage that is carried will extend to you as a client or a permissive user who does not have regular access to the car.

Buying From Dealers or Other Commercial Sellers


If you are buying from a commercial seller, the seller will have a blanket form of liability protection that will pay all claims that are filed when a loss occurs in a vehicle that is in the inventory.

This specialty form of commercial insurance is called general liability insurance and will provide protection for third-party damages in the event of a lawsuit.

If you are worried about what would happen if you damaged the vehicle during the test driver, dealers also have coverage for this scenario.

Most dealers that sell private passenger cars buy open lot coverage for full physical damage cover on the cars owned by the business.

Since there is protection, it is not common for a dealer to come after you unless they can prove that you intentionally crashed the car.

Many car buyers who are shopping for an affordable car will choose to shop for a model that is for sale by owner to keep the costs down.

Private party sellers do not pressure buyers and do not inflate prices.

While a private seller does not have commercial liability insurance, they should have a personal auto policy in place up until the car is sold.

Personal liability insurance provides the seller with financial protection by paying for third-party property damage and also for third-party medical-related costs.

While it is designed to provide coverage for the named insured and other listed drivers on the policy as they operate the covered, it will cover you, up to the limits listed, as a permissive driver while you are in the covered auto.

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What happens if the seller does not have insurance?

If the seller does not have coverage, they are violating the law.

The victim in the accident may attempt to come after you as the driver but will have to first sue the owner of the car.

If the person who sustained damages cannot collect from the owner, it is possible that you could face a long battle in court where there could be a judgment awarded or a wage garnishment assessed.

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Do you need any type of protection when you do not own a car?


Not owning a car does not mean that you do not have a need for protection.

In scenarios where you are buying a car or when you regularly rent cars, you could benefit from purchasing non-owner car insurance.

A non-owner’s car insurance policy will protect your finances and your assets if you have a driver license and if you drive from time to time.

As long as you can show you do not have regular access to the car and that it meets the non-owned car criteria, the insurer will pay for liability claims presented.

The owner’s insurance will be considered primary and then your insurance will be secondary if those limits are exhausted.

You will not be asked for your proof insurance as long as you are buying from a dealer.

Make sure that you price the cost of insurance coverage for the types of vehicles that you want to own so that you know the true cost of ownership.

You can do this quickly by using a rate comparison tool online that will instantly show you quotes.

After you see the big picture, you can decide on the car.

Find cheap car insurance today by entering your zip code below and start comparing now!