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 18, 2021

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Here's what you need to know...

  • When you sign a bill of sale for a vehicle, it becomes your legal liability to insure the vehicle
  • Buyers of used cars must comply with mandatory insurance laws or financial responsibility laws in their state
  • If you’re financing the vehicle, the dealer will verify that you have liability and physical damage coverage before driving off the lot
  • When buying from a private seller, you’re still required to comply with state insurance laws even if coverage isn’t verified
  • Failure to comply with insurance laws can lead to fines, citations, vehicle impoundment and other criminal penalties

If you’re saving up to buy a used car and you want the buying process to go as smoothly as possible, preparation is key. You’ll need to compare vehicle ratings, apply for auto loans and compare insurance costs through multiple carriers. While you might think that it’s possible to put off the insurance shopping until after you’ve owned the vehicle for a week or two, that’s not the case if you don’t have your own existing personal auto policy. Start comparing car insurance rates now by using our FREE tool below!

Owning a vehicle comes with responsibility. Not only do you have to operate that vehicle safely and abide by the traffic laws, you also need to comply with the insurance code that’s mandated by your state officials. You take on this responsibility not when you register the vehicle, but when you take possession as the new owner. If you’re not sure when you’ll need insurance on a used car, read on and get informed.

Know Your State Laws

It’s against the law to own a vehicle and to choose not to insure it, or at least, provide some sort of evidence that you’re financially responsible.

As soon you a become a vehicle owner, you also become a resident of the state that’s required to submit proof that you’re insuring the car you own.

What makes the law so difficult to follow at a national level is the fact that insurance laws are set at the state level.

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Understanding the Difference Between Tort and No-fault States

Every state has their own unique auto insurance laws and claims systems. While a majority of states operate under a fault-based system when settling claims, there are currently 12 states that have some form of no-fault system in place that requires their residents to buy medical coverage that pays for their own damages. What type of system that your state operates under will dictate what types of coverage you’ll be required to carry.

What are the mandatory coverages?

The state only requires you to purchase certain coverage options. You aren’t required to buy physical damage coverage for the covered auto, but you’ll be required to carry some or all of the following depending on the type of insurance system:

  • Bodily Injury:

Provides coverage that will pay for third-party injuries and medical-related costs. This coverage is required in states with tort law and some states with a partial no-fault system.

  • Property Damage:

Provides coverage that will pay to repair property owned by someone else if it’s damaged in an accident because of your negligence. Property Damage is often required in both tort and no-fault states.

  • Personal Injury Protection:

States that operate under a no-fault system will require you to carry Personal Injury Protection. This pays for reasonable medical expenses incurred by the policyholder if they’re injured in a car accident. This coverage pays out regardless of fault. Some states have limits and others will require you to have unlimited protection.

  • Uninsured Motorist:

Some states have enacted laws that require drivers to protect themselves from uninsured drivers. In these states, you’ll need to carry at least a minimum amount of Uninsured Motorist Protection which will pay for your medical bills when the liable party doesn’t have Bodily Injury Liability.

Do you need to provide proof of coverage to a seller?

If you’re buying a used car from a private seller, it’s not the seller’s responsibility to check and see if you have coverage that will protect your new household car. Some sellers, however, will verify you have coverage for their own peace of mind.

The process is a bit different if you’re buying from a dealer. Since the dealer will give you plates and they submit your registration to the DMV for you, they will ask you for an ID card showing you have mandatory insurance that extends to your newly acquired car. If you don’t have this, the dealer can’t put the paperwork through or hand over the keys until you can provide proof in the office.

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Do you automatically have coverage?

You won’t automatically have insurance coverage on a used car purchase unless you already own a car. Under an existing personal auto insurance contract, your coverage will extend to a newly acquired vehicle that’s purchased by the named insured for a limited amount of time. Typically, coverage extends for between 14 and 30 days, depending on the coverage options you carry and the options that you want.

Do you need anything other than state requirements?

In some cases, you can’t just carry state requirements and satisfy the requirements of the dealer. This is true when you’re buying a vehicle that’s being financed.

In order to show that you’re complying with the finance contract, you must have physical damage coverage on your car as soon as the agreement is signed.

If you have a full coverage policy, you’ll need to show the dealer your declaration’s page to satisfy the rules. If, however, you’re not insured, you’ll need to buy a full coverage policy and list the lender as a loss payee before leaving the finance office. Having the lender as a loss payee is necessary so that they receive a claims settlement check before you do when there’s a damage claim.

Failing to buy the required auto insurance when you’re buying a used car can land you in some trouble down the line. You could be cited, fined, or have your driving privilege suspended just for making a rash decision. It’s even possible to be sentenced to jail time. If you’d like to find out how much insuring a specific car will cost you, use an online comparison shopping tool. Enter the vehicle make and model into the fields, provide your personal information, and see how much required insurance coverage options will cost you. Compare car insurance rates now by entering your zip code in our FREE tool below!