A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 15, 2021

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If you have recently moved or are suddenly much more interested in being involved in your car insurance, then you may have come across something new to you: the vehicle insurance deposit.

Basically, states take different tacks with regard to insurance.

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Learning More About Car Insurance

Some states give lots of energy to determine who caused an accident, and which party owes the other victims something.

Other states only care that each individual gets the money to get medical care, rehabilitation therapy, and money to pay while stuck on the sidelines away from work.

Those are no-fault states, where it does not matter who caused an accident. Instead, it is up to individuals to take responsibility to have plenty of insurance to help them recover and get back to living their lives following an accident.

Most insurance policies include the following aspects, more or less, depending upon the individual state’s manner of viewing insurance:

  1. Bodily injury liability
  2. Property damage liability
  3. Uninsured and underinsured injury
  4. Uninsured and underinsured property damage
  5. Personal Injury Protection (PIP)
  6. Medical
  7. Comprehensive
  8. Collision

PIP and medical are typically available in no-fault states.

Though, medical is available as an add-on, after liability and uninsured motorist injury are both exhausted, if you purchased that insurance prior to a traffic incident resulting in injuries. Comprehensive and collision are available in all states, and cover your vehicle exclusively.

They are not compulsory unless you are financing or leasing your vehicle.

Collision covers impact, and comprehensive covers anything else that can happen to your vehicle. If you have made any alterations to the original body work, electronics, or engine components, you need to explain that to the insurance companies and perhaps consider buying additional coverage.

It is not a given that all of vehicle alterations will be covered automatically. At some point, you may wish to also consider giving up on collision and comprehensive coverage.

Generally, you may reach that point when the vehicle is worth less than insurance and a deductible.

The logic is that you would be better off setting aside the money you would otherwise be sending to the insurance company for coverage to a savings account. That way, if something happens to your car, you would have the financial resources to go out and replace it with another one.

For Californians, Texans, Ohioans, Missourians, Tennesseans, and Washingtonians, at the least, proving financial responsibility is the purpose of insurance. For that reason, in either of these states there are ways in addition to purchasing a vehicle insurance policy that would prove such financial responsibility. In New Hampshire, you would be perfectly legal to drive without auto insurance.

  1. Surety bond from a licensed surety organization. Purchase the amount required by your state and you are good to go.
  2. Deposit with your state’s department of motor vehicles – Specifically, your states will detail what department will issue the certificate of financial responsibility once you make a deposit with either the comptroller or department of insurance. Figure on making a deposit between $30,000 to $65,000.
  3. Certificate of Self-Insurance is for people or companies with many vehicles, such as a water company that has a fleet of delivery trucks. Some states, such as Texas, put the minimum for self-insurance at at least 25 vehicles.

When you are considering whether you want to put tens-of-thousands of dollars on hold with the state’s insurance department, there are considerations to make first.

For instance, even if you have the money to do so, would you be better off investing that money or setting it aside to earn interest elsewhere?

In addition, if you have that much cash sitting around, it is likely you may have other assets. What that means is that you are a target for lawsuits, whether you are legitimately at fault for causing an accident, or not.

You would be on the hook to pay an attorney fees to do exploration, defend you, and perhaps you would still have to pay out damages.

On the other hand, if you instead purchase auto insurance, you would free up a lot of your cash to do with it what you like. In addition, if you are insured to proper limits, then your insurance company would take on the obligation of defending you with its lawyers.

You would give up lots of risk and get to keep your money.

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Buying Sufficient Insurance

The idea when you purchase liability coverage, which is insurance that pays for property damage and injuries that you cause to other parties, you protect your assets. If you have a huge load of assets, then you may want to max out your vehicle insurance, and also buy an umbrella policy for another hefty sum of money.

If you are not as concerned about losing assets, because you have none, you still need to cover yourself.

In particular, you may end up wasting a lot of time otherwise in court, the object of a lawsuit, and have to pay out damages. You feel like you might be judgment proof because you have no assets?

Guess what, you can still be taken to the cleaners and garnishment to your low income can happen.

Instead, buy sufficient insurance limits because that transfers the responsibility onto the insurance company.

It’s suggested drivers carry $100,000 per person bodily injury liability, $300,000 per accident, and $100,000 property damage coverage, at the minimum. Most state minimums are far below these levels.

Buying insurance is an obligation in every state. There are other alternatives, such as putting into a car insurance deposit in states where that is an option.

However, you probably are still better off just buying insurance and putting the tens of thousands of dollars to work for you, gaining interest instead.

Likewise, if you are in an accident, you may find yourself very vulnerable to lawsuits, and also broke and owing more money than you put onto deposit.

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