Can I buy a car from a dealership without insurance?

Buying a car from a dealership can be stressful. After negotiating the price of the car, setting up financing, and arguing over whether you need rust proofing, the last thing you want is another surprise expense.

Before you can drive your new car off the lot, however, the dealership will ask you for proof of insurance. But is it really necessary to have car insurance when buying a car from a dealership, or is it just one more optional hurdle between you and your new ride?

Can I buy a car from a dealership without insurance?

The short answer is yes, you may be able to buy a car from a dealership without auto insurance but you’ll have to jump through some hoops – and you won’t be able to drive your new car off the lot.

Proper insurance is a condition of financing

If you’re like the vast majority of Canadians who choose to finance a car, you’ll find that you won’t get funded until you’ve shown proof of insurance. That’s because lenders use the vehicle as collateral for the loan, and don’t want to be left empty handed in case something happens to the car.

Most lenders will insist you have all perils insurance – providing coverage for collisions, fire, theft and vandalism – for the duration of your loan. Until you’ve given them an insurance binder showing that you have the coverage you need, they won’t release the money for your purchase.

You’ll also need to show proof of insurance if you lease your vehicle, even if you pay the full amount of the lease up front. Dealerships set lease prices based on the vehicle being returned to them, and they want to be sure you’ll have an intact car to give back to them when the lease expires. 

For both financing and leases, maintaining proper insurance is a condition of your contract. If you cancel your insurance policy early, the other party would be well within their rights to repossess the vehicle.

Also read: Leasing vs. financing a vehicle (and how it impacts your insurance)

Proof of insurance may not be needed for a cash purchase

If you decide to pay cash for a vehicle, you may be able to proceed without insurance. But as previously mentioned, you won’t be able to drive your car off the lot.

When you buy a car, the dealership typically takes care of the registration paperwork. But in order to register a vehicle and apply for a license plate, you need to show proof of insurance.

The insurance requirements for a cash purchase are, however, lower than when you lease or finance. Because you’re the only person responsible for the vehicle, you can choose to purchase only the minimum insurance legally required in your province or territory. Many provinces require you to carry $200,000 in third party liability coverage, as well as coverage for direct compensation – property damage, uninsured automobile, and accident benefits.

If you choose not to get any insurance coverage at all, you won’t be able to register the vehicle and receive licence plates. While you’ll be able to complete the sale with the dealership, you’ll have to make arrangements to have the car towed off the lot.

How do I get insurance before buying a car?

BC car insurance, Saskatchewan car insurance, and Manitoba car insurance must be purchased from the province’s public insurance company – ICBC, SGI, and MPI, respectively. Auto insurance in Quebec runs on a hybrid system, where a portion of coverage comes from the SAAQ while the rest must be purchased privately. Elsewhere in Canada, you can buy insurance either directly from an insurance company or through an insurance broker who will work with the insurance company on your behalf.

The best way to find the right insurance company for you is to compare quotes online. There are many websites like Ratehub.ca that make it easy to get quotes from multiple insurance companies and select the best coverage for your needs. 

Some insurance companies allow you to complete your purchase entirely online. Others might require you to have a brief phone call with an insurance agent to confirm your details, go over coverage options, and make sure everything is in place so you can pick up your new car without hassle.

Can I buy insurance from the car dealership?

Insurance is carefully regulated in Canada, and can only be purchased from a licensed insurance company or insurance broker. As such, the dealership can’t sell you insurance directly.

What types of auto insurance do I need?

The types and amount of insurance you need when buying a car from a dealership depends on whether you are financing, leasing, or paying cash. 

Regardless of your purchase, you’ll need to get the government’s minimum required car insurance in order to register the vehicle and get license plates. In many provinces that includes:

• Third party liability. This coverage protects you in case you’re found legally responsible for injuring or killing another person, or damaging their property. Most provinces require at least $200,000 in coverage but most experts recommend coverage of at least $1-million.
• Direct compensation – property damage. This coverage varies by province, but pays for repairs to your vehicle following a not-at-fault accident.
• Uninsured vehicle. This coverage protects you following an accident with an uninsured driver.
• Accident benefits. Perhaps the most important of all car insurance coverage, accident benefits insurance compensates you after being injured in a car accident. This coverage pays for medical expenses, replaces lost income, and covers funeral expenses if necessary.

If you finance or lease a vehicle, you’ll also need to purchase additional coverage to protect it against other kinds of losses. This coverage is also a good idea, especially if you’re buying a newer car or can’t afford to replace it in case something happens. It includes:

• All perils. This is the most common coverage and the one you’ll most likely want to select. All perils insurance combines collision and comprehensive, paying for almost anything that happens to your car, including collisions, fire, theft and vandalism.
• Collision. This coverage pays to repair or replace your car after an at-fault accident. With collision coverage, you can optionally choose a few additional coverages such as accident forgiveness, which stops your premium from increasing as the direct result of an at-fault crash.
• Comprehensive. This coverage pays to repair or replace your car after something that happens while it’s not moving, such as a fire, vandalism or theft. Note that when you buy comprehensive coverage separately, you’ll only be covered for the perils named on the policy.

Finally, there are several coverages that are optional regardless of whether you finance, lease or pay cash for your car. Some of the most common endorsements include:

• Non-owned vehicles. This endorsement extends your coverage to rental cars and vehicles you borrow. You might not need this coverage if you have a rewards credit card that includes rental car insurance.
• Transportation replacement. With this endorsement, your insurance company will pay for alternative transportation when your car is disabled by a claim.
• Removing depreciation deduction. If you need to replace your new vehicle after a total loss, this endorsement covers you for the full cost of a new car regardless of depreciation.
• Family protection. This coverage extends your third-party liability coverage to other members of your family.

Your insurance agent should make you aware of all the options available to you and help you make an informed decision about what coverage you need.

The bottom line

Buying a car – whether it’s new or new to you – can be expensive, but insurance is not the place to cut corners. Compare insurance quotes online to get an idea of how much you’ll have to pay for your next new car.

Also read:

• How does road rage impact your car insurance?
• The total cost of owning a car in Canada
• How to buy a car in Canada