A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 26, 2021

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Here's what you need to know...

  • Every state has its own compulsory insurance or financial responsibility laws that dictate how much insurance you’re required to carry
  • If you own a vehicle and that vehicle is registered with your state’s motor vehicle department, you’re required to carry continuous insurance on the vehicle at all times
  • Owners who’ve listed their vehicle for sale should keep their coverage active to protect their interests during test drives
  • If you remove coverage from a vehicle listed for sale, the motor vehicle department may fine you for failing to comply with insurance laws while you owned the vehicle and the registration was active
  • The only time it’s recommended to remove coverage from a vehicle listed for sale is when the vehicle has a special non-operational registration status
  • If your car is registered non-op, be sure to consider carrying comprehensive coverage to pay for damages that a car can sustain while it’s in storage

There’s no doubt that deciding to sell your car in the private market will earn you more money than trading it in, but listing a car ‘for sale by owner’ requires a commitment of your time. If you’re willing to post the signs, create the online classified ads, gather all of your maintenance records, make time for appointments, you’re a good candidate for earning a greater profit by choosing to sell your car yourself.

Selling your car on your own isn’t always easy. You have to take dozens of calls, answer the same questions, disclose issues the vehicle might have, and show your vehicle to less than serious buyers. It can take weeks or months to get a real bite and a real offer. During these weeks or months, you need to maintain the vehicle so that you can make sure it holds its value. You also need to maintain insurance on your vehicle to protect yourself and to stay legal. Compare car insurance rates now by using our FREE tool now!

Your Obligation to Comply with State Insurance Laws

When you buy a vehicle and register that vehicle in your name, you’re agreeing to comply with the state-mandated insurance laws. The only two states that allow registered owners to drive uninsured vehicles without proving they are financially responsible are Virginia and New Hampshire. As long as you don’t live in either of these states, you must comply with the state’s compulsory insurance laws for as long as the car is registered in your name. This is true even when you aren’t actively driving the vehicle or when the car’s being driven by someone else.

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What type of insurance is required?

Not all states operate under the same type of insurance system. You don’t have to carry full coverage to comply with the law, but you do have to carry the mandatory state minimums. The mandatory coverage options will depend upon whether you’re in a state operating under tort law or a no-fault system.

What is a tort or fault-based system?

A majority of states use a tort system when settling injury claims. Tort systems, which also go by fault-based systems, require the party responsible for a crash to pay for the injuries when third-party drivers, pedestrians or passengers are injured. You will carry the following in states with a tort system in place:

  • Bodily Injury Liability
  • Property Damage Liability
  • Uninsured Motorist Protection (not always required)
  • Medical Payments (not always required)

What is a no-fault system?

No-fault systems are becoming more popular but there are still only 12 states with a version of this system in place. In a no-fault state, motorists can’t sue for all of their injuries and damages after an accident. Instead, they will file a claim for their damages with their own insurer. The purpose of this unique type of program is to cut the number of claims that go to court. You’ll need to carry the following:

  • Personal Injury Protection
  • Property Damage Liability
  • Uninsured Motorist Protection (required in some states)

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Do vehicles with a Planned Non-Operational registration need insurance?

When you own a vehicle that you don’t operate or that isn’t operational, you can opt to register the vehicle as Planned Non-Operational (PNO). When you do this, you pay a very small fee so that the vehicle can legally be parked, towed or stored on public roadways or highways.

If your vehicle is in storage or there’s no way that the car will be driven during a test drive, you can legally remove your Personal Injury Protection or liability coverage from your vehicle without facing penalties.

If someone does drive a vehicle with a PNO registration, any damages that occur during the operation will fall on your shoulders.

Don’t Overlook the Importance of Insuring a Vehicle in Storage

You might not need liability coverage for a stored vehicle but that doesn’t mean you don’t need coverage to pay for physical damage. If your car catches fire in storage or is flooded, you’ll be stuck paying for the repairs on your own. This means that you’ll be out of all the profits that you could have made from the sale.

Consider carrying storage insurance to protect the car from losses caused by perils like fire, theft, vandalism and falling objects. A storage policy provides only comprehensive coverage without requiring liability.

The Penalties for Failing to Comply with Insurance Laws

There’s a long list of different penalties for letting insurance on a vehicle lapse while it’s listed for sale. The penalties enforced will depend on your situation and the state the you live in. Some of these penalties include:

  • Fine of up to $1000
  • Suspension of license
  • Suspension of registration
  • Community service
  • Vehicle impoundment
  • Reinstatement fee
  • Jail time

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The Hidden Consequences of an Uninsured Test Drive

There are state imposed penalties and then there are hidden consequences. One of the biggest consequences of driving without insurance on a test drive is having a loss. Since you’re still the vehicle own it’s your responsibility to pay for damages that occur during the test drive. You’ll also lose the sale and may face serious repercussions for allowing someone to drive your vehicle without insurance.

Don’t Remove Coverage Until You Release Liability

It’s always better to be safe than sorry. The best rule of thumb when you’re removing insurance from a vehicle is to wait until you’ve released liability. In most states, you can go to the DMV website and enter your plate number and the buyer’s information to send a notice to release liability instantly. Once you’ve done this you no longer have an insurable interest.

If you’re buying a new car, you should quote the cost of coverage through several carriers. Quoting insurance through multiple companies at once has never been easier with online comparison shopping tools. Enter the vehicle information, provide your information, and select coverage from a reputable company that you’re familiar with. Enter your zip code in our FREE tool below to compare rates now!