What is Proof of Financial Responsibility? Can It Replace Insurance?

Last Updated on June 21, 2020

Some state DMVs require proof of financial responsibility in lieu of auto insurance. Financial responsibility is a driver’s ability to pay for damages after a car accident.

It’s easy to confuse proof of financial responsibility with insurance. After all, insurance also proves that you are financially responsible for an accident.

However, proof of financial responsibility and insurance are two different things. In most cases, proof of financial responsibility cannot replace car insurance. However, there are some states where you can use proof of financial responsibility to replace car insurance.

Confused? That’s okay. Today, we’re explaining everything you need to know about proof of financial responsibility and car insurance.

proof of financial responsibility

What is Proof of Financial Responsibility?

Proof of financial responsibility, in the car insurance world, refers to your ability to cover losses in a car accident.

If you collide with another vehicle, for example, and cause damage to that vehicle and injure the people inside the vehicle, then you are required to pay for that damage. That’s why you need to provide proof of financial responsibility in order to legally drive on the road in most states.

In most states, drivers prove their financial responsibility in a simple way: you provide proof of insurance. Your insurance guarantees minimum liability coverage. It protects you in certain accidents. Car insurance covers the medical bills of anyone you injure in an accident, for example, as well as any property damage you inflict.

In other states, however, you can prove your financial responsibility without car insurance. You can make a cash deposit at your state’s DMV/RMV, keep a real estate bond with the state, keep a surety bond with the state, or keep a government bond with the state.

Instead of buying car insurance, for example, your state might allow you to keep $25,000 in a cash deposit with the state DMV. If you are involved in an accident, then this $25,000 fund is used to cover any liable damages – just like car insurance would cover the damage. It’s not technically car insurance, although it functions similarly to car insurance.

How to Prove Financial Responsibility in Your State

Financial responsibility laws vary between states. In most states, however, you are required to maintain financial responsibility at all times when driving a car. That financial responsibility can include car insurance or a deposit with the DMV.

The California Compulsory Financial Responsibility Law, for example, requires every driver and owner of a motor vehicle to maintain financial responsibility at all times via one of the following methods:

  • A motor vehicle liability insurance policy (i.e. ordinary car insurance)
  • A $35,000 deposit with the DMV
  • A surety bond for $35,000 obtained from a company licensed to do business in California
  • A DMV self-issued self-insurance certificate

You must have evidence of financial responsibility whenever you drive. If you are pulled over by law enforcement in California, for example, then you must provide at least one of the above items to prove that you are financially responsible.

Other states have similar rules. In Florida, for example, drivers can prove financial responsibility with personal injury protection (PIP) and property damage liability (PDL). Or, they can qualify for a self-insurance certificate issued by Florida Highway Safety and Motor Vehicles (FLHSMV).

Other states do not allow you to deposit money with the DMV or buy a surety bond. Instead, drivers are required to have car insurance to prove their financial responsibility.

In some states, meanwhile, car insurance is technically optional. Drivers can prove their financial responsibility without buying car insurance.

In Virginia, for example, drivers can buy ordinary car insurance. Or, they can buy self-insurance or surety bonds. Alternatively, drivers can pay an uninsured motor vehicle (UMV) fee of $500 per year, which allows you to drive motor vehicles at your own risk.

In New Hampshire, meanwhile, drivers are not required to have car insurance at all. However, the state still requires drivers to cover costs of bodily injury and property damage for an accident they cause. Many drivers buy car insurance for that reason – although you can technically pay for all accident damages out of pocket without ever owning car insurance.

Ultimately, financial responsibility laws vary between states.

SR-22 Certificates, FR-44 Certificates, and Financial Responsibility

Some states require SR-22 or FR-44 certificates, both of which are also known as financial responsibility certificates. If your car insurance has lapsed, or if you are a high-risk driver, then you may be required to obtain an SR-22 certificate. You provide this certificate to the DMV to register (or re-register) your vehicle.

An SR-22 or FR-44 certificate is a guarantee of coverage – but it’s not insurance. It’s a certificate from your insurer guaranteeing that you meet the minimum required levels of coverage in your state.

SR-22 and FR-44 certificates are not car insurance. They’re simply documents verifying that you have insurance. SR-22 and FR-44 certificates do not replace insurance. They simply prove that you have insurance coverage.

Financial Responsibility Can Replace Car Insurance in Certain States

Certain states allow you to prove your financial responsibility with a surety bond or DMV deposit, which means you don’t have to buy insurance.

In California, for example, you can buy a $35,000 bond or deposit $35,000 with the DMV to prove your financial responsibility. If you do this, then you don’t have to buy car insurance in California: your deposit or bond proves that you are financially responsible.

In other states, this is not an option, and you need to buy car insurance to prove that you are financially responsible.

Furthermore, in states requiring an FR-44, SR-22, or FS-1 certificate, these certificates do not replace car insurance. They’re simply certificates verifying that you have car insurance. They don’t directly provide coverage. They’re provided by your car insurance company to prove you are covered.

When Am I Required to Provide Proof of Financial Responsibility?

You may be required to provide proof of financial responsibility any time you are stopped for a traffic violation by a police officer.

If you fail to provide evidence of financial responsibility, then you may receive a citation. If you are convicted, you may be fined $500 and have to pay additional costs or fees associated with your case. Your vehicle may be impounded.

You may also be required to provide proof of financial responsibility if you are involved in a traffic accident with another driver.

Most states require you to file all severe accidents to the DMV within 7 to 14 days of the accident. In California, for example, drivers are required to report an accident to the DMV within 10 days if someone was injured (regardless of the severity), anyone was killed, or the total amount of property damage exceeded $750.

Generally, you need to prove your financial responsibility any time you are asked for insurance.

What Does It Mean to Show Proof of Financial Responsibility?

Proof of financial responsibility, in the car insurance world, is a document showing that you can cover the cost of an accident. Proof of financial responsibility can be:

  • Liability insurance (ordinary car insurance)
  • A deposit at your state DMV
  • A surety bond
  • Another type of state government bond

All of the above can function as proof of financial responsibility. However, rules vary widely between states. Some states allow you to deposit $35,000 at the DMV instead of buying car insurance, for example, while other states require you to buy car insurance to prove financial responsibility.

James Shaffer
James Shaffer James Shaffer is a writer for InsurancePanda.com and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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