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Alternatives to Car Insurance
Do you need to buy car insurance? As of 2014, nearly all of the 50 states require you to demonstrate "financial responsibility" for a car accident, and car insurance is generally the simplest way to fulfill this responsibility. However, there are other ways. We'll review them here.
Do I Need Car Insurance?
This depends. All states require that you show some form of financial responsibility. While there are typically several ways to do so, the easiest way is by getting car insurance.
Other alternatives require quite a bit of money upfront; however, these alternatives are an option if you have the resources.
What Is Financial Responsibility?
Simply put, financial responsibility means proof that you have the assets to pay for damages if you're involved in an accident that hurts another person or damages someone else's property (or both).
The most common method of proving financial responsibility is purchasing a car insurance policy that meets the minimum requirements for your state.
Some states, however, allow other methods to prove that you can pay up if you're judged at fault in a car accident. Those methods include:
- Surety bond—In some states, you can post a surety bond purchased from a licensed surety company in an amount specified by the state.
- Funds deposited with the state—Among states that allow alternatives to car insurance, most accept a certificate showing that you have deposited a minimum amount with a specified state agency, such as the state comptroller's office or the state's office of insurance.
- Amounts typically range between $30,000 and $65,000.
- Certificate of Self-Insurance—Self-insurance is generally only available to individuals or companies that own many cars.
- In Texas, for example, self-insurance is only available to companies that own 25 or more vehicles.
Are Cash Reserves Enough?
While there may be some benefits to large companies who decide to self-insure their auto fleets, the drawbacks far outweigh the benefits for most individual drivers and small businesses. To begin with, it's not easy to prove financial responsibility without an auto insurance policy.
Getting a certificate of self-insurance in most states requires you to meet specific qualifications, and surety bonds or deposits require you to tie up far more money than you'd pay out to an insurance company.
Despite that, the judgment from a single accident could wipe out your entire fund, and leave you owing more.
Even if you prove that you were not at fault in the accident, you may still have to cover the expenses of defending yourself in court. If you have auto insurance, that's an expense your insurance company will likely pick up.
What If I Can't Afford Car Insurance?
Whatever you do, you need to have some kind of financial responsibility to drive. If you have a small budget, your best option is car insurance, as the other options require to have a large financial reserve.
If you can't afford a hefty premium, smart shopping can help you find a good, cheap car insurance policy:
- Shop online for car insurance quotes and compare quotes from many providers to get the best rates.
- Ask about possible discounts from all auto insurance companies you're considering. Most companies offer a multitude of money-saving options, from good driver discounts to savings for bundling policies together.
- Look into low-income car insurance (see below).
- Carry only the insurance you need.
- For example, it might save you money to drop comprehensive insurance if you drive an older, low-value vehicle.
- Increase your deductible. The deductible is the amount you'll pay out of pocket after an accident before your insurance company picks up the bill.
- Make sure you pick a deductible you can afford when the time comes to pay it!
Low Income Auto Insurance
Luckily, certain states are beginning to offer low-income auto insurance to assist those drivers who make less than a specified amount determined by your state.
California, for example, has instituted a Low Cost Auto Insurance Program that provides car insurance to low-income drivers with a good driving record. New Jersey has a similar program. Other states are looking at following suit. Check with the insurance commissioner's office in your state to see if something similar is available or is in the works.
If you drive, auto insurance is a fact of life. It's the easiest and least expensive way to prove financial responsibility and get your car on the road.
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