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Alternatives to car insurance


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Question: I’ve heard that there are alternative methods of financial responsibility that are allowed in some states instead of a driver buying auto insurance. Is this true, and can you give me some examples?

Answer: There are several states that have a financial responsibility law for motor vehicles, allowing car owners to provide proof of financial responsibility through approved methods other than a car insurance policy if they so desire.

Alternative methods of maintaining financial responsibility typically include a surety bond, cash or securities, or self-insurance.  Also, a couple of states allow you to pay an uninsured motorist fee to drive legally without auto insurance.

Even with such laws in place, the Department of Motor Vehicles (DMVs) we have spoken to have said that the most common form of financial responsibility used by motorists continues to be auto insurance policies in at least the state’s minimum limits.  Alternative methods to car insurance aren’t as easy to obtain and may require one to have a lot of money readily available.

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For instance, with a surety bond you pay a percentage of the full amount to carry the bond and then will owe the full bond amount if you’re in an accident and need to cover liability costs of those that you harmed.  The percentage you have to put down to carry a bond varies, depending upon factors such as your credit.  If you have good credit, it may be 1 to 4 percent.  If they deem you a higher risk, it can be 5 to 15 percent.

Buying car insurance is downright easy in comparison -- and it doesn’t put your savings at risk.   You shop around for the best priced car insurance policy, pay your premium and have coverage up to the limits you’ve chosen.  Also, you can obtain coverage for your own vehicle with coverages like collision and comprehensive, something you can’t do using alternative methods of financial responsibility.

Alternative method examples

Ohio requires applicants for driver’s licenses and vehicle registration to sign a statement indicating that the individual has proper proof of financial responsibility; however, the proof doesn’t have to be shown to officials to get the license or registration.  Ohio allows for the following alternatives to automobile insurance:

  1. A certificate issued by the Bureau of Motor Vehicles (BMV) indicating that money or government bonds in the amount of $30,000 is on deposit with the office of the Treasurer of the State of Ohio.
  2. A certificate of bond issued by the BMV in the amount of $30,000 signed by two individuals who own real estate having equity of at least $60,000.
  3. A certificate of self-insurance issued by the BMV. This is available to those with more than 25 motor vehicles registered in their name or a company's name.
  4. A $30,000 bond issued by an authorized surety or insurance company.

While Ohio’s minimum liability limits are increasing to from 12.5/25/7.5 to 25/50/50 on December 22, 2013, the alternative methods of financial responsibility are staying the same.

Tennessee doesn’t require proof of financial responsibility when someone obtains a driver’s license or registers a car. Instead, its law mandates that if a driver is charged with a traffic offense or in an auto accident an officer can require evidence of financial responsibility.   The state accepts:

  1. A written proof of liability insurance coverage provided by a single limit policy with a limit of not less than $60,000 applicable to one accident.
  2. A split-limit auto insurance policy with a limit of 25/50/15.
  3. A deposit of cash of $60,000.
  4. The execution and filing of a bond in the amount of $60,000.

Texas requires an accepted form of financial responsibility to be shown when you register your vehicle.  Texas law, however, allows many ways to show legitimate proof of financial responsibility for your motor vehicle.  This includes:

  1. A current auto insurance policy or car, or binder issued pending issuance of a liability policy (minimum limits of 30/60/25).
  2. A certificate of compliance showing that a surety bond filed with the Texas Department of Public Safety (DPS).
  3. A certificate showing that $55,000 in cash or securities has been deposited with the State Comptroller.
  4. A copy of a certificate filed with the DPS that was issued by a county judge (and acknowledged by a sheriff) verifying you have deposited at least $55,000, in cash or by cashier’s check, with the county judge.  County judge must be in the county where the vehicle is to be registered.
  5. A copy of a self-insurance certificate issued by the DPS (must own 25 vehicles or more to qualify).

A certificate of financial responsibility should be issued in lieu of an insurance card for options 2 – 5 (read Texas Transportation code Section 601.51 for more information).

Washington state requires a vehicle registered there have one of the following types of financial responsibility:

  1. An auto insurance policy with liability limits of at least 25/50/10.
  2. Self-insurance certificate if you have 26 or more cars.
  3. A certificate for deposit for at least $60,000.  You can make a deposit of collateral with the State Treasurer office or in a bank account set up for the state of Washington.
  4. A liability bond for at least $60,000 filed with a surety bond company authorized to do business in Washington.

Other states that also allow alternatives to auto insurance include California, Iowa, Mississippi and Nebraska. (Click on the state name for information on the alternative methods allowed and other insightful consumer information).

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