Can I Self-Insure My Car? What is Self-Insured Car Insurance?
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Self-insuring a vehicle sounds like a crazy concept, but it’s a legitimate strategy used by thousands of drivers across the United States.
Today, we’re explaining everything you need to know about self-insuring your vehicle. Is self-insured car insurance the right choice for you? Keep reading to find out.
What is Self-Insured Car Insurance?
Self-insured car insurance is an alternative type of auto insurance. You’re allowed to self-insure your vehicle in most states.
With self-insured car insurance, you provide your own car insurance. Instead of buying a car insurance policy from an auto insurance provider like GEICO, you’re providing your own insurance.
For some people, self-insured car insurance is a guaranteed way to save money. For others, self-insured car insurance is simply not feasible. That’s because self-insured car insurance requires two things:
- A lot of cars (25+ vehicles)
- A lot of money ($30,000 to $70,000)
Surprise! You Are Already Self-Insured
Many people are surprised to discover that they’re already self-insured. It’s true! Technically, you’re self-insured anytime you do not have an insurance policy covering some risk. If you don’t have renter’s insurance and you rent an apartment, for example, then all of your possessions are self-insured. If your possessions get damaged or stolen, then you’ll have to pay to replace those possessions out of pocket.
With self-insurance, you’re accepting full responsibility for your assets. You’re acknowledging the financial risks associated with potential losses – like having your items damaged or stolen.
How Self-Insured Auto Insurance Works
There are different types of self-insured auto insurance. Depending on your budget and lifestyle, you can choose the self-insured auto insurance strategy that works for you.
Deposit Money With your State DMV to Receive a Certificate of Self-Insurance
Up above, we mentioned that true self-insured car insurance only makes sense for people with a lot of money or a lot of cars (or both). In this situation, you may be better off with self-insured car insurance instead of individual policies for each vehicle.
Not all states allow self-insured car insurance. The states that do allow it often have different rules.
Once you’ve verified you have a sufficient number of vehicles, then you typically need to deposit money with your state’s Department of Motor Vehicles (DMV).
The specific amount you need to deposit varies. Generally, you’ll need to deposit between $10,000 to $60,000. This money is locked away when your car is registered. It functions just like legal car insurance would function. The money is used to cover your liability in the event of an accident.
Because of the large investment, self-insured car insurance is not feasible for the majority of drivers.
There are various types of requirements for self-insurance. States may have surety bonds, fund deposit requirements, or certificates of self-insurance:
Surety Bond: In some states, you need to post a surety bond. You can purchase a surety bond from a licensed surety company. The state will explain how much is required for your bond. The bond proves you have the financial means to cover your liability in the event of a collision.
Deposit Funds: As mentioned above, many states require you to deposit funds with the state DMV. The deposited funds requirement ranges from $10,000 to $60,000. Once you’ve deposited this money, you’ll receive a form proving that you have a certain amount of money deposited with the state.
Certificate of Self-Insurance: After receiving a surety bond and depositing funds, you may receive a certificate of self-insurance. This must be carried in your vehicle at all times. It functions as an ordinary proof of insurance document.
Self-Insurance by State
Below is the list of states that allow you to “self-insure” your vehicle, as well as the amount of the bond or cash deposit you have to post in lieu of insurance:
|State||Amount Needed to Self-Insure|
Partial Self-Insured Car Insurance
Some experts recommend going with a partial self-insurance auto insurance policy.
When you’re partially self-insured, you might buy basic liability insurance from a car insurance company. Instead of opting for full coverage, however, you waive the full coverage option. That means you don’t have comprehensive or collision coverage. Your premiums will be substantially reduced.
Now, instead of paying that added premium to the insurance company each month, you put the savings in a bank account. You’re paying the same amount of money you would pay for full coverage car insurance, but only half of the money is going to the insurance company. The other half is going to a bank account you control.
This is a basic type of partial self-insured auto insurance.
Obviously, this system isn’t perfect: if you get into an accident within the first one or two years of practicing this self-insurance strategy, then your savings are unlikely to cover your costs. If you never get into an accident, however, then you will have saved thousands of dollars over the life of your car. The money you saved is now in your account to be spent however you like.
Getting Partially Self-Insured by Raising your Deductible
You can also get partially self-insured by raising your deductible. If you maximize your deductible, then you’re getting lower premiums in exchange for paying a higher one-time fee in the event of a claim.
Using this strategy, you’re effectively insuring yourself (through self-insurance) for the amount up to the deductible.
Ultimately, most people are self-insured at least partially. True self-insured car insurance, however, is available only to people with:
- A lot of money
- A lot of cars
Many states require you to have 25+ vehicles before you can get self-insured car insurance, for example. Then, you’re required to deposit money ($10,000 to $70,000) with your state DMV to receive a certificate of self-insurance. This may be cheaper than getting individual policies for all of your vehicles, but self-insured car insurance is not a feasible solution for the average driver.