The law requires car insurance, as I was always told. Recently, I discovered that’s not true. Not completely. Bear with me. In every state, drivers must prove they can afford damages or liability if they cause a car accident. But some states, especially those that don’t require liability insurance, allow drivers to show proof of sufficient assets to cover car accident costs. Can you drive uninsured?
Can you drive uninsured?
Drivers in California must have liability insurance that covers at least $15,000 bodily injury per person and up to $30,000 per accident. All this on top of $5,000 per accident in property damage. The DMV sends a paper slip in every mailing reminding you that you can hold a $35,000 cash savings account instead of car insurance. You must apply with paperwork. Keeping this balance is all you need if your application is accepted. You manage your own liquid cash insurance policy.
The paperwork for my wife’s driver’s license renewal told me about this car insurance option. For real, it got my juices flowing. We pay over $1,700 for auto insurance every six months. Having $35,000 in savings would save me $3,400 a year on car insurance. That’s comparable to a 10% ROI. My car insurance is paid with after-tax dollars, so the return is tax-free!
Does driving without insurance sound too good?
However, this method has major drawbacks.
Changes in amount?
The original amount was $20,000. The amount changed is unknown. Right now, the date is unimportant. The key is that this number can change. It’ll likely always rise. Suppose the DMV raises the limit to $50,000 in a year or two. That savings account needs $15,000—where would we get it? We couldn’t stop driving until we saved $15,000.
Costly Insurance Gaps
Second, car insurance lapses can be costly. If you ever need car insurance again, this is crucial. Underwriters review your insurance history. When I first moved to America, I had to get my Canadian car insurance company to write a letter proving my coverage. The letter detailed my years of premiums in a different country.
My American insurance would have cost at least $1,000 per six months. You read correctly. A $2,000 annual premium because they didn’t think I had insurance. If you let your insurance lapse and have to reapply, you may lose all your savings.
Driving Uninsured Out of State Concerns
Third, cross-country travel is messy. Crossing state lines changes California’s no-car-insurance law. The state you want to drive in may have a similar policy, but you probably haven’t applied for the exclusion there like you did in California. Consider getting regular insurance if you plan to drive in another state.
Car itself?
Uninsured cars have no coverage. That’s obvious? It’s also vital. In an accident, you’re financially liable for damages or bodily liability. Thank goodness California is not no-fault. So the at-fault driver pays all expenses. Not at fault? Don’t worry.
If you are at fault, the bill will be very high. You drive well; we agree. However, accidents happen to everyone. You may owe much more than the $35,000 you saved. At least repair or replace your car and the other party’s. You may also be responsible for accident victims’ medical bills. Except for your deductible and likely rate increase, insurance covers you. Do you drive without insurance to save money? You’re in trouble.
Do not forget to deal with the other party’s insurer. A car insurance agent will deal with the other party’s agent. The majority of negotiations and processing occur behind the scenes. You must handle everything without insurance. It may require full-time work and cause stress and anxiety.
“Forget that; I’m driving insurance anyway!”
Imagine you’re willing to go bankrupt without car insurance. You’re confident you won’t crash your car. What prevents you from not having insurance and using your savings as financial proof?
Technically, you can practice. You can drive. Before starting, the car won’t check for proof. The gas station won’t care when you fill up. Naturally, you’re breaking the law. Maybe you don’t mind.
Significant costs may apply
The police will You will be ticketed if you cannot show car insurance (or liquid savings, if your state allows) when pulled over. State fines vary, but the first offense is $100. The totals are strange because it’s well documented online that the ticket will cost about $450 after fees and penalties. If caught multiple times, this amount rises quickly. Fees and penalties could cost thousands. Also, more expensive car insurance if you break down and obey the law.
Yikes! Just California. California is among the most aggressive states in assessing fees and penalties, but uninsured driver fines are relatively low. This means penalties are likely higher in other states.
Conclusion on Driving Uninsured
After reading this, you shouldn’t drive without insurance. Proof of cash savings may not be enough if your state allows it for car insurance. Auto claims can easily exceed $35,000. Given the risk of civil litigation, car insurance is worth it.
Ending up with mandatory car insurance may be the truth. In some states, you don’t need it, but you do.
