Contrary to popular belief, automobile insurance is not necessarily a requirement. Proof of financial responsibility is though. For your average American this is achieved through purchasing commercial auto insurance. You may want to take a look at the self insurance options that are available to you.
What is self insurance? Self insurance allows you to assume the financial risk yourself if you are involved in an automobile collision. Instead of filing a claim with your insurance company, you are responsible for paying for the damages.
How does self insurance change your requirements? You still have to meet your states minimum liability insurance requirements regardless of self insurance. You will just be guaranteeing that liability amount yourself instead of using an insurance agency.
How do I self insure? States that allow for self insurance will have an application procedure in place and they will base their decision to approve or disapprove your application based on financial information or assets you have. You must meet your states requirements for providing the financial means to cover the liability amount set in place.
How practical is it? Most people are not in a financial position to self insure. They don’t have the assets or funds to set aside for unforeseen accidents or collisions. If you are barely scraping by paying a monthly insurance premium, then self insurance is probably not something you will be able to consider seriously.
Is it enough? Even if you self insure, it may not be sufficient to cover the expenses associated with a traffic collision. There may be cases where the amount you self insured for isn’t enough to cover the costs. It won’t cover uninsured motorists or underinsured motorists. This then becomes your responsibility instead of a claim on your insurance. You are still at risk of having suit brought against you if you cause injury to another through the operation of your vehicle and are unable to cover their expenses.
How much money can it save you? Theoretically, if you are never involved in any type of collision or accident that requires repairs to your car or another persons car or personal injury coverage, then you are “saving” the cost of monthly insurance, whatever that amount is for your car and amount of insurance you want to carry. You are having to put up sufficient funds or assets to cover the costs, so in the long run, you have to have much more money up front to self insure.
Another way you can partially self insure is to raise your deductible. You are then assuming a greater financial responsibility without having to put up a great deal of assets. You are voluntarily agreeing to pay a larger amount per every accident claim you file with your insurance carrier.
About.com, How to Cut Insurance Costs By Self-Insuring, Bobbie Sage
About.com, What Does It Mean To Self-Insure?, Miriam Caldwell
Autos.com, Which States ARe Effected By The Financial Responsibility Law