Posted : 04/03/2012
Depending on where you live, you may be able to cruise the streets without auto insurance -- and you won't be breaking any laws.
In some states -- such as California, Tennessee, Washington, Texas and Ohio -- it's perfectly legal to skip carrying car insurance if you can prove you have the financial ability to cover liability costs if you get in a wreck. And if you live in New Hampshire, you don't even need to prove your financial fitness.
"New Hampshire is always contrary to other states," says James Van Dongen, spokesman for the New Hampshire Department of Safety. "The Legislature has never felt that they should compel people to buy insurance."
Although you are not required to have auto insurance in New Hampshire, if you're uninsured and at fault in an accident, you will be required to post a bond or cash equal to the amount of damage you caused in that accident.
In other states, you either need to purchase car insurance or prove you can cover your costs.
California businessman Michael Reza went the latter route for more than a decade as he spent his vacations traveling in Europe and purchasing cars in various countries.
Because the cars were built to different standards than those sold in the California market, it also made them unique and difficult to easily replace. They were virtually impossible to insure, Reza says. Insurers couldn't compute a replacement cost for the cars, so they refused to provide coverage for them.
California requires drivers to have liability insurance, with a minimum of $15,000 in coverage for the injury or death of one person, $30,000 for more than one person, and $5,000 for property damage.
In lieu of that, a California driver who doesn't want to buy car insurance can make a $35,000 cash deposit with the California Department of Motor Vehicles (DMV), post a surety bond for $35,000 or get a self-insurance certificate from the DMV.
Reza had no problem registering the vehicles, which included a Porsche from Germany and a Ferrari from Italy. But because he couldn't purchase auto insurance, he posted a $35,000 surety bond.
Typically, you can obtain a surety bond by paying a fee based on a percentage of the bond amount, and the issuer will extend credit, guaranteeing the full amount. You won't have to pay the full bond amount unless you're in a wreck and need to cover the liability costs. Fees for surety bonds vary a lot, depending on your credit history and state laws, among other things. But in general, they range from 1 percent to 4 percent of the surety bond amount if you have good credit. If you paid 4 percent for a $35,000 surety bond, it would be $1,400.
Reza primarily drove vehicles made for the American market, and the imports were cars he used on occasion, racking up a couple thousand miles per year.
While he had some concern about being in an accident with such valuable vehicles, "I was more concerned about liability and other people," he says. "It makes you cautious."
Jan Mendoza, spokeswoman for the California DMV, says the state doesn't keep track of the number of motorists who don't purchase auto insurance.
Individuals who don't buy car insurance have the financial ability to meet the $35,000 requirement, while corporations with 25 or more vehicles find it more cost effective to self-insure, Mendoza says.
Ohio is another state where you can choose between auto insurance and demonstrating the financial ability to cover liability if you're involved in a wreck.
If you choose not to carry auto insurance you must have one of the following:
The state randomly selects about 5,400 vehicles each week to verify that they're insured, says Ohio BMV spokeswoman Lindsey Bohrer. Vehicle owners are mailed a notice requiring them to prove they have insurance.
Those who don't respond or don't provide adequate proof of insurance can have their license suspended and may be prohibited from registering a vehicle in the state.
While Iowa's law doesn't mandate compulsory auto insurance, in reality drivers must buy car insurance or prove financial responsibility, says Mark Lowe, director of the Iowa Motor Vehicle Division.
You can register a car in Iowa if you don't have insurance. But if you're stopped by a law enforcement officer, you must have proof of insurance, Lowe says.
If you don't have liability insurance, you must post a certificate of deposit or bond with the secretary of state that shows you have the financial resources to cover $55,000 in injuries and property damages if you're involved in an accident, he says.
Only a handful of individuals choose that option, he says. Typically a big company, like a car rental agency, will decide to self-insure.
It's a different story in New Hampshire, where no liability insurance is required unless you've been in an at-fault accident. Van Dongen says the state doesn't record how many motorists have decided to go without insurance, but it's a small percentage of the population. He says those who go without "tend to be people with lower incomes, or they're young kids."
Because of that, if you're hit by an uninsured driver, the driver usually is "judgment-proof because he or she doesn't own anything," and instead your uninsured motorist coverage foots the bill, Van Dongen says.
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