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Do I Need Insurance to Buy a Used Car?

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Insurance Q&A: “Do I need insurance to buy a used car?

The devil is in the details when it comes to answering this question. While it is mandatory in nearly every state to have at least minimum car insurance coverage (liability-only) to operate a motor vehicle on a public road, it is not mandatory to purchase insurance coverage to buy a used car in every situation.

But there’s a catch or two involved here…and you will likely need to get the insurance going in almost every scenario.

*As a rule of thumb, if you intend to drive the car anywhere, you should certainly have coverage in place when purchasing it.

Getting a Loan?

First things first, you will need insurance coverage if you are borrowing money to purchase the car. Your lender will require you to have physical damage coverage on your auto policy. This will include both comprehensive and collision coverage.

[What is the difference between comp and collision?]

While your state only requires the liability car insurance, the lender will force you to purchase this type of coverage in order to protect their financial interest in your car. After all, technically they own the car until you pay off the loan.

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Purchasing From a Dealership?

If you plan to purchase your pre-owned vehicle from a dealership, you better get your insurance lined up.

Any reputable dealership, selling new or used vehicles, will likely require you to provide evidence of insurance coverage before driving off the lot.

This may be the case even if you do not take out a loan to purchase the car.

Buying From a Private Seller?

This is probably the only scenario where you might get away with the purchase transaction without having to show proof of insurance.

This would only play out if you were paying cash though.

Again, if you are borrowing money to buy from a private seller, your bank will want the evidence of insurance from you (see above).

Already Have a Policy?

There is a new (or used) car grace period on existing auto insurance policies that affords you a few days to give notice of your new purchase or replacement vehicle.

During this period, your existing coverage may be extended to your new car.

There are restrictions though, so be sure to contact your insurance agent or insurance company to verify all of the details before driving off the lot.

Tip: How does the insurance company determine the value of a car?

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