Car insurance is a requirement in almost every state for a reason — drivers who are at fault in an accident are expected to pay for any damage they cause to other people and their property. And the best way to pay for the damage you cause in an accident is through your car insurance.
But some people can afford to pay those costs entirely out-of-pocket, so several states have created options for drivers who would rather self insure than get an auto insurance policy. Just because it’s an option in your state, however, doesn’t mean self-insurance is right for you.
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What is self-insured car insurance?
Self insurance is where you choose to take on the financial risks associated with driving your car rather than getting a standard car insurance policy. But you can’t just decide to skip buying auto insurance with the promise that you’ll put the cost of any damage on your credit card.
Each state has specific requirements and instructions for how to be a self-insured driver. If you don’t follow the law when setting up your self-insured policy you aren’t self-insured, you are uninsured, and you’re at risk for serious consequences if you’re caught driving without insurance.
How does self-insurance work?
In order to be self insured, you need some way of proving that you’re financially responsible for any damage you cause. Depending on where you live, there are different rules around how to establish that you’re self-insure, but there are typically three main ways to self-insure your vehicle:
1. Cash deposit: Self-insured drivers can choose to make a cash deposit in a savings account and put the account information on file with the DMV. The amount of money you’re required to put in the account will vary from state to state. Your local DMV will monitor the account and pull money from it directly to pay for any damage you cause in an at-fault accident.
If the balance of the account gets too low it is the equivalent of letting your insurance policy lapse, and you can expect to be penalized as if you are driving without insurance. Depending on the state you live in, this could include fines, having your license suspended, and having your registration canceled.
2. Certificate of self-insurance: Depending on the laws in your state, people who have more than a certain number of vehicles registered in their name (often 25) can get a certificate of self-insurance. Essentially, this is a document that states they can cover medical bills, repair costs, property damage, and bodily injury liability costs.
If you want to be self-insured you will need to prove to the state that you can afford to pay those financial costs in the event of an at-fault accident, whether you are a business with a fleet of cars or a wealthy person with a collection of classic cars.
3. Surety bond: Some states allow you to purchase a surety bond that guarantees you'll cover the costs (including both bodily injury and property damage expenses) if you're at fault in a car accident.
If, for whatever reason, you are unable to pay those costs, the surety company will pay them for you and seek repayment later. If the idea of a surety bond makes sense for your needs, check with your DMV for a list of licensed surety bond companies.
Each state has their own options and limitations when it comes to self-insuring your vehicle, so check with your local DMV or equivalent agency to find out what options are available to you.
What is the difference between self-insured and fully insured?
Someone who is self-insured is taking on the financial risks associated with insuring their vehicle. This means if there is an accident, they are responsible for paying for all the damage they caused to the other driver and their property, as well as any damage to their own vehicle.
Someone who is fully insured has a traditional car insurance policy that covers liability, comprehensive, and collision coverage through a regular auto insurance company.
The terms “full coverage” or “fully insured” are not exactly accurate; every insurance policy comes with exclusions and limitations that mean it doesn’t cover everything, but full coverage insurance policies typically offer robust coverage that protects you in most circumstances.
Which states allow automobile self-insurance?
Laws about car insurance vary from state to state, so whether or not you are allowed to self insure your vehicle depends on your local rules and regulations.
The chart below shows which U.S. states allow drivers to self insure:
State | Is self insurance allowed? | What are the self insurance requirements for the state? | How much is required for a cash deposit? |
|---|---|---|---|
N/A | N/A | N/A | |
Yes | Drivers with 25 or more vehicles | ||
Yes | Drivers with 10 or more vehicles | Not specified, reach out to your local DMV for more information | |
Yes | Drivers with 25 or more vehicles | Not specified, reach out to your local DMV for more information | |
Yes | Individual drivers with 1 or more vehicles | ||
Yes | Drivers with 25 or more vehicles | Not specified, reach out to your local DMV for more information | |
Yes | Individual drivers with 1 or more vehicles | Not specified, reach out to your local DMV for more information | |
Yes | Drivers with 15 or more vehicles | ||
Yes | Individual drivers with 1 or more vehicles | ||
Yes | Individual drivers with 1 or more vehicles | Cash deposit of $100,000 with an additional $300,000 of authorized investments | |
Yes | Individual drivers with 1 or more vehicles | Not specified, reach out to your local DMV for more information | |
Yes | Drivers with 25 or more vehicles | ||
N/A | N/A | N/A | |
N/A | N/A | N/A | |
N/A | N/A | N/A | |
N/A | N/A | N/A | |
N/A | N/A | ||
Yes | Drivers with 25 or more vehicles | Net worth of $10,000 for every vehicle insured (25 cars = $250,000) | |
Yes | N/A | ||
N/A | N/A | N/A | |
N/A | N/A | ||
Yes | N/A | ||
Yes | Drivers with 25 or more vehicles | ||
Yes | Individual drivers with 1 or more vehicles | ||
Yes | Companies with 26 or more vehicles | ||
Companies with a fleet of vehicles | N/A | ||
Yes | Drivers with 26 or more vehicles | ||
N/A | N/A | N/A | |
Car insurance is optional in New Hampshire | Individual drivers with 1 or more vehicles | ||
Yes | Drivers with 25 or more vehicles | Must submit 3 years of financial records and pay a $1,500 fee | |
N/A | N/A | N/A | |
N/A | N/A | N/A | |
N/A | N/A | N/A | |
Yes | Individual drivers with 1 or more vehicles | ||
N/A | N/A | N/A | |
N/A | N/A | N/A | |
Yes | Drivers with 25 or more vehicles | ||
Yes | Individual drivers with 1 or more vehicles | $50,000 for the first vehicle, plus $10,000 for each additional vehicle | |
Drivers with 25 or more vehicles | N/A | ||
N/A | N/A | N/A | |
N/A | N/A | N/A | |
N/A | N/A | ||
N/A | N/A | N/A | |
N/A | N/A | N/A | |
Yes | Individual drivers with 1 or more vehicles | ||
Individual drivers with 1 or more vehicles | N/A | ||
Yes | Drivers with 26 or more vehicles | ||
N/A | N/A | N/A | |
Individual drivers with 1 or more vehicles | N/A | ||
Yes | Individual drivers with 1 or more vehicles | ||
N/A | N/A | N/A |
There were several states that did not have self-insurance information available on their website, but that doesn’t mean they don’t allow drivers to self insure. If you live in a state that doesn’t provide self-insurance information online, you can reach out to your local DMV for more information.
Self-insurance pros and cons
There are some big benefits to self-insurance, but there are some big drawbacks, too.
Self-insurance pros | Self-insurance cons |
|---|---|
Saves money on insurance premiums | Increased risk of paying out-of-pocket, especially for large claims |
Claims won't be denied by an insurance company | Money must be set aside in a separate account and can't be used for other purposes |
No exclusions or limitations on coverage | Requires a large up-front investment that isn't feasible for most people |
Self-insurance is a big risk, which means it could come with a big reward or a big loss, depending on your situation. If you self insure and you are never in a car accident, you could potentially save $1,000 a year or more as an individual driver or tens of thousands a year as a company with a fleet of vehicles. At the same time, if you choose to self-insure and you are in an at-fault accident in the first year you could be out tens or even hundreds of thousands of dollars in property damage and bodily injury costs.
Is self-insurance a good idea?
It can be, depending on the situation, but it probably isn’t the best option for most drivers. Self-insurance can save you a significant amount of money on insurance premiums, so for people or businesses who can definitely afford to pay for claims out-of-pocket, self-insurance can be a good idea.
People and businesses who don’t have tens of thousands of dollars (or more) to set aside for insurance purposes shouldn’t self-insure.
Some states allow individual drivers to self insure if they set aside the equivalent of the minimum required amount of car insurance. For example, California allows drivers to set aside $35,000 in a cash deposit or surety bond and consider themselves self-insured.
But car accidents can cause significantly more damage than that — totaling someone’s Range Rover or Mercedes, for example, could cost two or three times more than that in property damage alone, not even taking bodily injury claims into consideration.
If you aren’t able to set aside enough money to pay for the most expensive potential claims, self-insurance isn’t the right choice for you.
→ Learn more about recommended amounts of car insurance
Frequently asked questions
Is self-insurance a retention risk?
Yes. When someone chooses to self-insure it means they have chosen to retain some risk, which is a fancy way of saying they are okay with losing a little bit of money in the event of a claim because it gives them more up-front control over their money.
What car insurance do you really need?
It depends on your situation. Everyone needs liability coverage, preferably 100/300/100 levels of liability, but there are many other types of auto insurance available. If you can’t afford to replace your car out-of-pocket, you will also need comprehensive and collision coverage. You may also need PIP, MedPay, uninsured or underinsured motorist coverage, or roadside assistance.
Why would a company choose to be self-insured?
Companies choose self-insurance for a number of reasons. Companies that own fleets of vehicles may find it more affordable to self insure, while self-insuring other types of insurance (health, life, etc.) gives companies more transparency with costs and greater control over how their insurance works for themselves and their employees.
Can anyone get self-insurance for their car?
Depending on the laws in your state, most people are allowed to choose some type of self-insurance if they want that option. Just because you have the option doesn’t mean it is affordable, however, and the vast majority of people don’t have tens of thousands of dollars to set aside in a bank account that can only be touched if they are in a car accident.
