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These States Do Not Require Car Insurance
Is it illegal to drive without insurance? Answer: it depends.
Car insurance is legally required in most states. It is an expected, predictable monthly expense for most drivers that helps prevent financial ruin in an accident. Luckily, depending on what type of policy you have, you’ll be covered whether you are found to be at fault or are the victim of a careless driver.
However, despite all of the benefits of car insurance, it is legal in some states not to have it.
Is this safe? Are drivers using alternatives? Let’s talk about it.
What states don’t require car insurance and why?
Out of all the 50 states, two states do not require auto insurance. The states that don’t require car insurance are New Hampshire and Virginia.
In Virginia, if you choose to not have car insurance, there is a fee of $500. Ironically, the fee is actually more than the average cost of liability most drivers pay in this state (currently, Virginia drivers pay an average of $469 for minimum coverage). It should be noted, however, that the $500 doesn’t get the driver anything in return and must be paid yearly for each vehicle the driver owns. The $500 is a fine, straight and simple. Should a driver choose to pay the $500 fine instead of purchasing car insurance and be found at fault in an accident, he or she will still be expected to pay for any damages inflicted. Even though it has a car insurance ‘loophole,’ Virginia is a tort state. Drivers responsible for auto accidents must give the affected party compensation for any medical injuries and property damage inflicted.
In New Hampshire, there isn’t a fee for not having car insurance, but if you get into an accident, you’re still required to pay for any damages you cause because it, too, is a tort state. The state average in New Hampshire is currently only $425.84 for minimum coverage.
If you do decide to purchase insurance in either state, New Hampshire requires you to have a 25/50/25 policy, whereas Virginia requires a 25/50/20 policy. This means that should you be found at fault in an accident, your insurance provider must cover up to:
- $25,000 per person for bodily injury or death
- $50,000 per accident for bodily injury or death
- $25,000/ $20,000 for property damage
You must pay any damages that exceed your policy limits out of pocket. If you cannot pay, both your license and car registration will be suspended in both states.
What options do I have in these states?
In Virginia, you also have the option to purchase a bond or deposit cash with the state instead of purchasing car insurance. If you do this, you are essentially proving financial stability to your state. In fact, you can do this with a number of other states as well. All of the following states that allow bonds or cash deposits in lieu of car insurance include:
- New Mexico
- New York
- North Carolina
- Rhode Island
- South Carolina
- South Dakota
Each state has its own bond or cash deposit requirement, but all are quite significant. In Virginia it’s $50,000, and in many states it’s considerably more (Utah, for example, requires a bond or cash deposit of $160,000).
The bond or cash deposit is used in the event that you cause an accident. Any amount paid to an injured party must be immediately repaid with interest back to the state.
There are obviously many differences between bonds and car insurance. One of the more interesting ones, however, is that the bond applies to you and not your car. This means you can drive any car you want with a bond and not worry about whether or not you are covered.
If you live in one of these states, what’s your best option?
Choosing to not have insurance in Virginia and New Hampshire (or any of the above bond states) is an unnecessary risk. The prices for medical treatment, court fees, and new cars are only going to continue to rise year after year. Though you may have a sizable bank account, you could very easily lose everything after a single accident.
If we don’t even consider the costs for medical treatment, consider a new car’s cost. These days, many new cars cost between $30-$50k, which is likely more than enough to wipe out any bond or cash deposit with your state (if not your entire savings account).
Next, consider the cost of car insurance compared to how much $50,000 could grow when properly invested. $50,000 invested for ten years with a 6% return rate would grow to $89,542.38. The U.S. average for minimum liability is only $611.12 a year. Assuming it stays at about the same amount, ten years’ worth of payments would equal $6,111.20 — far less than the $39,542.38 profit you would make if you invested your money instead of purchasing a bond
[ Read: How Much Car Insurance Do I Need? ]
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