Self-Insured Auto: Is It Possible?

Self-insured auto is an option in some states that allows vehicle owners to assume all responsibility for protecting their vehicles. This means that instead of buying a regular car insurance policy, you take on all financial liability yourself. While this can be a great way to save money on insurance premiums, it's important to note that self-insurance is a big risk and requires a large upfront investment. In the event of an accident, you will be responsible for covering all the costs associated with repairs and medical bills.

Self-insurance fund pros and cons

Self-insurance is a risk management strategy where individuals or companies set aside funds to cover unexpected losses instead of purchasing third-party insurance. It is a financial approach that allows individuals and businesses to take control of their risk management.

Pros of Self-Insurance:

• Cost savings: Self-insurance can result in savings as you avoid paying premiums that include the insurer's profit margin.
• Tailored coverage: Self-insurance allows for more customized coverage to meet specific needs.
• Investment potential: Funds set aside for self-insurance can be invested to grow over time.
• Increased data: Self-insurance provides increased data on claims costs, administration costs, etc.
• Accountability of healthcare providers: Self-insurance allows businesses to hold healthcare providers accountable for the costs of their services.
• Lower administrative costs: Self-insurance can lead to lower administrative costs compared to purchasing insurance from a third-party provider.
• Wellness programs: Self-insurance enables businesses to develop wellness programs to lower healthcare costs.

Cons of Self-Insurance:

• Financial risk: Self-insuring carries the risk of not having enough money to cover damages or medical care in case of an unexpected event.
• Legal requirements: In many cases, individuals and businesses are legally required to have certain types of insurance, such as auto insurance for drivers in most states.
• Discipline required: Self-insuring demands financial discipline to accumulate and maintain the necessary funds for emergencies, such as accidents, natural disasters, or death.
• High-risk claims: There is a high risk of costly claims, especially for large or frequent accidents.
• Third-party administrator: Self-insuring requires the use of a third-party administrator to manage claims and benefits, which can be costly.
• Confidentiality concerns: Ensuring the security of confidential information, such as employee medical records, can be challenging.
• Time to reap benefits: It can take 3-5 years to see the benefits of self-insurance, and maintaining the necessary funds during a recession or economic downturn may be difficult.

How to self-insure your car

Self-insurance is an option in some states that allows vehicle owners to assume all responsibility for protecting their car and take on the financial risks resulting from any losses. This means that instead of paying an insurance company, the driver will absorb all costs related to an accident, theft, or liability.

To self-insure your vehicle, you will need to meet the specific requirements of your state. Some common methods of self-insurance include:

• Cash deposits: In some states, you can choose to make a cash deposit in a savings account and put the account information on file with the DMV. The amount required for this deposit will vary depending on the state.
• Certificate of self-insurance: In some states, people who have a certain number of vehicles registered in their name (often 25) can obtain a certificate of self-insurance. This document states that they can cover medical bills, repair costs, property damage, and bodily injury liability costs.
• Surety bonds: Some states allow you to purchase a surety bond that guarantees you'll cover the costs of an accident, including bodily injury and property damage expenses. If you are unable to pay, the surety company will cover the costs and seek repayment later.

It's important to note that self-insurance is a big risk and may not be the best option for most drivers. Before choosing this option, make sure you have enough money to cover any losses and consider setting up a self-insurance reserve or emergency fund. Additionally, check with your local DMV or equivalent agency to understand the specific requirements and options available in your state.

States that allow self-insurance

Self-insurance is an option in some states, allowing vehicle owners to assume all responsibility for protecting their car and any financial risks resulting from losses. While self-insurance can save money on insurance premiums, it is a big risk and requires a large upfront investment.

Most states allow drivers to arrange self-insured auto insurance by posting a bond or cash deposit. However, there are specific requirements and instructions for how to be a self-insured driver, and these vary from state to state.

• Alaska
• Connecticut
• Georgia
• Hawaii
• Indiana
• Maryland
• New Mexico
• North Dakota
• Pennsylvania
• Vermont

In addition, New Hampshire is the only state that doesn't require residents to have insurance or even prove they could cover their liability in an accident. However, if you cause an accident, the state will demand proof of insurance or the ability to pay for treatment of up to $50,000 in injuries and repair of up to $25,000 in property damage.

It's important to note that self-insurance is not the same as being uninsured. If you don't follow the law when setting up your self-insured policy, you are considered uninsured and may face serious consequences if caught driving without insurance.

Penalties for driving without insurance

Driving without insurance in Georgia is considered a misdemeanor and can incur serious penalties, including fines, jail time, and the loss of driving privileges. If convicted, you may face a fine of up to $1,000 and up to 12 months in jail. Your license and registration may be suspended for 60 to 90 days, and you will be required to pay a reinstatement fee to get your license back.

Insurance lapse penalties

If your insurance has lapsed, insurance companies are required to notify the State of Georgia, which can lead to a suspension of your driver's license. You will have a 30-day grace period to reinstate your insurance before any penalties are imposed. If you fail to do so within this period, you will need to pay a $25 lapse fee and a reinstatement fee of $60 to get your license back.

Penalties for driving without proof of insurance

Even if you have valid insurance, driving without proof of insurance can result in a fine of up to $25. It is important to always keep your insurance information easily accessible in your vehicle.

In Arizona, driving without insurance is a serious offence and can result in hefty penalties. For a first offence, you may be fined $500 and have your license, registration, and plates suspended for three months. The penalties increase for subsequent offences, with a second offence resulting in a $750 fine and six-month suspension, and a third offence leading to a $1,000 fine and a full year suspension.

How to save money on insurance

Self-insurance is an option in some states that allows vehicle owners to take full financial responsibility for protecting their car and assume all the financial risks resulting from losses. This option can help lower insurance costs. However, it is a big risk and requires a large upfront investment, which is not feasible for most people.

• Switch insurance companies: Consumers who switch insurance companies not only save money but also report higher satisfaction levels with their new insurer.
• Increase your deductible: Increasing your deductible from $500 to $1000 can bring your annual premium down by 20% to 25%.
• Drop collision and comprehensive insurance: As your car gets older and its value decreases, you may no longer need collision and comprehensive coverage. Dropping these can save you about $1000 a year.
• Take a defensive driving course: Some insurance companies offer discounts for safe driving, and you can take a state-approved defensive driving course to get a discount on your premium.
• Report low mileage: If you drive less than 10,000 miles a year, report your mileage to your insurance company as most companies include annual mileage in their pricing.
• Bundle your auto coverage with homeowners' insurance: Some companies offer discounts when you purchase both home and auto policies from them.
• Pay out of pocket for minor accidents: For minor accidents that don't involve another driver, consider paying out of pocket to avoid a potential rate increase.
• Get an independent insurance agent: An independent agent represents multiple insurance companies and can help you compare coverage and premiums from several insurers.
• Consider a dividend policy: Some top-rated insurers offer dividend policies, which may have higher premiums but can provide money back in the form of dividend payments.
• Sign up for driver monitoring: Some insurance companies offer discounts if you allow them to monitor your driving habits through a smartphone app or a device plugged into your car.
• Improve your credit score: A higher credit score can lead to lower insurance premiums.
• Take advantage of car insurance discounts: Insurance companies offer various discounts, such as for safe driving or having safety features in your car.
• Avoid traffic violations: Speeding tickets and accidents increase your insurance premiums.
• Drop unnecessary car insurance: If your car is old and has a low value, consider dropping collision and comprehensive insurance, which may not provide much reimbursement anyway.
• Choose a car that's cheap to insure: Safe and moderately priced vehicles, such as small SUVs, tend to have lower insurance costs than expensive or flashy cars.
• Increase the deductible: Raising your deductible can save you money on collision and comprehensive insurance.
• Improve your credit: A good credit history can positively impact your insurance rates, although this doesn't apply in California, Hawaii, Massachusetts, and Michigan.

Frequently asked questions