Can a Surety Bond Replace Actual Car Insurance?

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Some drivers replace car insurance with a surety bond.

In certain states, drivers can use a surety bond instead of car insurance. Many drivers are surprised to learn that some states don’t technically require car insurance – if you have a surety bond, then you do not need to buy car insurance

Most states in America – 32 in total – allow you to replace car insurance with a surety bond. You obtain a surety bond through a company, and the company covers your liabilities or damages in the event of a loss.

Most states require a surety bond of $25,000 to $50,000. In many states, the surety bond amount matches the minimum insurance liability limits.

Can a surety bond replace actual car insurance? Is a surety bond the right choice for you? Today, we’re explaining the basics behind surety bonds and car insurance.

Can a Surety Bond Replace Actual Car Insurance?

Insurance Requirements By State

You may assume that every state in America requires car insurance. However, car insurance requirements are a little trickier than that.

All states require proof of financial responsibility to drive on public roads, and most drivers choose to prove financial responsibility with car insurance. However, you can prove financial responsibility in other ways.

Most states allow you to use at least one of the following items to prove financial responsibility:

  • A standard car insurance policy
  • A surety bond issued by any authorized surety company
  • A state Department of Motor Vehicle bond
  • A state Department of Motor Vehicle certificate for money or government bonds
  • A certificate of proof of financial responsibility signed by an insurance agent (SR-22 or FR-44, for example)

All of these things can legally function as car insurance in most states. As long as you can prove your financial responsibility, you should be able to legally drive in most states.

What is a Surety Bond?

A surety bond is a legally binding contract between three parties. This contract ensures the involved parties will meet certain obligations.

The involved parties include the principal (the person requesting the bond), the obligee (the person requiring the bond), and the surety company (the company guaranteeing the terms of the contract). If the person who initially purchases a bond is unable to fulfill his or her financial obligations to a person, organization, or company, the surety agency promises to pay up to the amount of the bond on their behalf. The principal then repays the bond over time if a claim is made against it.

A surety bond is similar to insurance, although they work in different ways.

A surety bond does offer protection against some financial loss, although the full risk is not being transferred to another person – which is the case with insurance.

Instead, the bond simply covers the full amount of any claim, up to the bond’s limits, giving the bondholder time to repay if needed.

You might pay $1,000 to open a $30,000 surety bond, for example. If you cause an accident, then the surety company pays $30,000 to the injured party. Then, you are required to repay this surety bond over time – like a loan.

How Does a Surety Bond Work for Claims?

A surety bond is an alternative to auto insurance, but it functions differently from auto insurance.

With a surety bond, the individual at fault is ultimately responsible for damages due to an accident or liability involving a vehicle.

The surety (the money you have deposited with the state) pays in advance to the damaged party. The bond owner, meanwhile, repays the entire amount over time.

In that sense, the surety bond is more like a line of credit. Only borrowers in good standing can qualify for a surety bond.

Yes, a Surety Bond Can Replace Auto Insurance in Certain States

32 states allow you to post a bond or deposit in lieu of car insurance. Some states require you to deposit over $100,000 to qualify, while other states require as little as $10,000.

Here’s a state-by-state breakdown of the states requiring surety bonds, including the amount required:

  • Alabama: $50,000
  • Arizona: $40,000
  • California: $35,000
  • Colorado: $35,000
  • Delaware: $40,000
  • Idaho: $50,000
  • Indiana: $40,000
  • Iowa: $55,000
  • Louisiana: $55,000
  • Maine: $127,000
  • Maryland: $75,000
  • Massachusetts: $10,000
  • Mississippi: $15,000
  • Missouri: $60,000
  • Montana: $55,000
  • Nebraska: $75,000
  • New Mexico: $60,000
  • New York: $25,000
  • North Carolina: $85,000
  • Ohio: $30,000
  • Oklahoma: $75,000
  • Rhode Island: $75,000
  • South Carolina: $35,000
  • South Dakota: $25,000
  • Tennessee: $60,000
  • Utah: $160,000
  • Vermont: $115,000
  • Virginia: $50,000
  • Washington: $60,000
  • Wisconsin: $60,000
  • Wyoming: $25,000

In all of the above states, you can request a surety bond of the listed amount to replace car insurance.

How to Get a Surety Bond

You can get a surety bond from an approved surety agency licensed in your state.

Search for surety bonds in your area to find a surety bond provider near you.

Why Get a Surety Bond?

Some drivers get a surety bond because they are unable to obtain ordinary car insurance. You might be a high-risk driver, for example, and car insurance premiums may be prohibitively expensive.

Others get a surety bond because they have multiple vehicles, high-end vehicles, or other unique situations. Instead of getting car insurance for each vehicle, you might get a single surety bond.

Some people use surety bonds to save money. Surety bonds have a lower upfront cost, although the total costs may be much higher than auto insurance. With a surety bond, you pay lower premiums today, but you may lose the entire value of the bond in the event of a loss.

Surety bonds aren’t available to everyone. Generally, you need strong financials and good credit to qualify.

How Much Do Surety Bonds Cost?

You generally pay 1 to 15% of the total bond amount, depending on your credit score.

The cost of a surety bond depends largely on your credit score. Drivers with a good credit score will be able to access preferred surety bond rates, while drivers with a bad credit score may find bonds prohibitively expensive.

If you are a driver with good financials requesting a $50,000 surety bond, then you should expect to pay somewhere between $350 and $800.

High-risk bond premiums, meanwhile, can be much more expensive. You might be required to cover as much as 10% or 15% of the bond, for example.

Final Word

Most drivers buy auto insurance to prove their financial responsibility. Some drivers, however, buy a surety bond instead.

Surety bonds have unique advantages and disadvantages, but they may be the right choice for your situation.

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