Do You Really Have To Buy Auto Insurance?

18 September 2015
 Categories: Insurance, Articles


It is commonly believed that you must purchase auto insurance if you drive a vehicle. In a surprise twist, however, most states only require you to show you have the financial resources available to pay for damages resulting from an accident where you're found liable. While the easiest way to fulfill this requirement is to purchase auto insurance from a reputable company, many states allow residents to prove financial responsibility in other ways. Here's more information about this possibility.

Alternative Options to Auto Insurance

Depending on the state where you live, you have up to three alternative options to auto insurance:

  • Cash deposit – In states that allow it, you can deposit cash with the relevant state agency, and the agency will issue you a certificate of financial responsibility you can use in lieu of an auto insurance policy. The minimum deposit amount required varies depending on the state and can be as low as $25,000 (Wyoming) or as much as $160,000 (Utah).
  • Surety bond – Instead of cash, some states will accept surety bonds, which are a type of financial contract that protects the state from suffering losses if you get into an accident. You can obtain one from a licensed surety bond company, and it must be in the minimum cash amount required by the state.
  • Self-Insurance – If you own a fleet of cars, you can submit a certificate of self-insurance to the state guaranteeing you will pay for accidents caused by you, your employees, or other people covered under the policy. The state must approve your plan and typically requires applicants to have a minimum number of cars to qualify. For instance, in Washington, you must have 26 cars or more to be eligible.

You can usually find information about your state's insurance requirements and options by contacting the Department of Insurance, Department of Motor Vehicles, or similar entity in your area.

Should You Go This Route?

Possibly the most powerful benefit of opting for an alternative way to insure your car is you can eliminate the monthly (or yearly) auto insurance bill. The average national rate is $900 per year, so that's money you can use for other things. This option is also flexible, since you can typically get your money back and obtain traditional insurance at any time.

However, the disadvantages of this option can be just a powerful. First, there is the risk of getting into a serious accident. If the damage goes above the amount you have on deposit, you will have to pay the difference out of your pocket in addition to any damages or losses you sustain in the accident. While you may be able to afford to deposit up to $160,000 with the state, are you financially secure enough to handle a several hundred thousand or million dollar court judgment?

Another thing you want to consider is that auto insurance companies have attorneys, insurance adjusters, and other professionals who handle all the work of negotiating a settlement or litigating an auto accident case in court. If you self-insure, you would need to hire and pay these people to help you or spend time and effort doing the work on your own.

Lastly, you have to decide if putting down a large deposit with the state is the best use of your money. Certainly you'll save money on insurance every year. However, if you invest that chunk of change wisely, you could probably make more in dividends and interest than what you'd actually save by not paying for traditional auto insurance.

In reality, these alternative insurance options may be a good fit for people who don't drive a lot and/or who have plenty of money and assets to cover possible high-dollar accidents. Everyone else may want to stick to traditional insurance.

To learn more about alternative insurance options or get assistance with choosing the right policy for you, contact an auto insurance agent in your area. You can also click here for more information