Trading in your old car

When you trade in your old vehicle to a car dealer, the paperwork you sign releases ownership to them, and you are free to remove that automobile from your auto insurance policy. It doesn’t happen automatically. You must instruct the agent, company, or, if allowed, remove it yourself from the app on your phone or by updating your policy online.

Selling your old car yourself

Many car buyers believe they can get a better return on the private sale of a car rather than by trading it in. The biggest mistake I see a lot of clients make is they immediately remove the car from their policy while placing it out on the street for sale. So many things can go wrong with this scenario.

1. Someone could hit the car while parked and flee the scene. The automobile would not be covered by the auto insurance because it was removed. While the car is still registered in your name, you are still required to maintain insurance, even if it is parked and not being driven, especially if it is parked on the street.
2. Allowing someone to test-drive the car means the prospective buyer will be operating it on public roadways. The law still applies that you are responsible for maintaining the insurance because you are still the registered owner. Many sellers falsely believe that the insurance of the one test-driving the vehicle will cover the car. That is simply not true. Any policy will state that only cars belonging to the policy owner will be covered. Until the test-driver buys the car and you have released it with a signed title and provided a bill of sale as the owner, their policy will not cover the offered car.
3. Someone could steal the car and use it to commit a crime or take it on a joyride. The damage caused by your vehicle that you own could fall on you to pay for from your own pocket, even if you were not the driver and did not authorize someone else to operate it.

A common misconception many policyholders make is that they think the old car will still be covered until midnight of the same day even if they call the agent or company to remove the car or they take it off the policy themselves. That vehicle would be removed immediately, and no, the insurance doesn’t extend a second longer. You would be better off putting the new car on and waiting until the car is parked in your driveway before removing it from your policy, whether or not you intend to sell it. Do not park an uninsured vehicle on the street. You are still required to maintain insurance on a car that is physically on public roads. Saving one day of premium on a car you still own is not worth the risk.