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Driving Without Insurance: Everything You Need To Know

Published February 24, 2021

6 minute read

David Ning

By David Ning

I was always told that having car insurance is required by the law. However, I recently found out that not strictly true. Not entirely. Stay with me for a second. Yes, every state requires drivers to prove that they have the finances to pay for damage or liability if there’s a car accident that’s deemed their fault. But some states — especially the ones that don’t mandate drivers to have liability insurance — allow drivers to just show proof that they have sufficient assets to pay for costs of a car accident. So, can you really get away with driving without insurance?

Can You Actually Drive Without Insurance?

California, where I live, requires all drivers to carry liability insurance that covers at least $15,000 bodily injury per person and up to $30,000 per accident. This is on top of the $5,000 property damage per accident. However, the DMV also reminds you via a paper slip in every one of their mailings that you can hold a savings account of $35,000 cash deposit instead of having car insurance. You’ll need to file paperwork to apply for this. However, all you have to do is maintain this balance at all times if your application is accepted. It’s basically a liquid cash insurance policy that you maintain on your own.

The paperwork that came with my wife’s driver license renewal is how I found out about this car insurance alternative. To be honest, it got my juices flowing a bit. We pay a little over $1,700 for our auto coverage now every six months. At first glance, I could save $3,400 a year on car insurance if I could come up with $35,000 in a savings account. That’s practically equivalent to a 10% return on the investment. The return is completely tax free too, since I pay my car insurance with after tax dollars!

Is Driving Without Insurance Too Good To Be True?

However, there are some glaring complications with this method.

What If The Amount Changes?

First of all, this amount used to be $20,000. I’m not sure exactly when the amount changed. The specific date isn’t important right now. What is important is that we know this number can change. And it’s likely only ever to go up. What if the DMV decides to up the amount to $50,000 in a year or two? Where would we find an extra $15,000 to put in that savings account? It’s not like we could just stop driving until we saved an extra $15,000.

Insurance Lapses Can Be Costly

Secondly, having a lapse in car insurance coverage could potentially be financially painful. This is especially true if you ever need car insurance again in the future. Insurance companies look at your insurance history when they underwrite your policy. When I first came to America, I had to get my previous car insurance company from Canada to write a letter as proof that I had coverage there. The letter included details about the years of premiums I had already paid into the system (just in a different country).

Otherwise, my American insurance would have been at least a thousand dollars more, every six months. Yes, you read that right. An extra $2,000 a year just because they didn’t think I had any history of insurance. If you have an insurance lapse and then have to reapply, you might end up paying back all of the savings you made when you had no coverage.

Out of State Concerns For Driving Without Insurance

Third of all, things get messy if you ever travel to other parts of the country. California might technically allow you to drive without car insurance, but things change as soon as you cross state borders. Even if the state you want to drive in has a similar policy, you likely haven’t applied for the exclusion in that state like you did in California. If there’s even the slightest chance you’ll be driving in another state at some point, you should probably just get regular insurance.

What About The Car Itself?

You won’t have any coverage if you don’t have car insurance. That’s obvious, right? But it’s also the most important. In the event of an accident, you are going to be financially responsible for any damages or bodily liability caused by you. Luckily, California is not a no-fault state. That means the driver who is at fault for the accident pays for all expenses incurred. If you’re not at fault, then don’t stress.

On the flip side though, the bill is going to be extremely high if you are unfortunately deemed to be at fault. We totally believe that you’re a good driver. But accidents happen to the best of us. There’s a high chance you’ll be liable for much more than the $35,000 you’ve saved for this. You’ll have to repair (or replace) your car and the other party’s car, at the minimum. You might also need to pay for the medical bills of everybody involved in the accident. If you have insurance, you’re covered (other than your deductible and the likely rate increase that will come afterwards). If you’re trying to save a few bucks by driving without insurance, you now in big trouble.

Don’t forget about having to deal with the other party’s insurance company either. When you have car insurance, your agents will deal with the other party’s agents. Most of the negotiation and processing happens behind the scenes. When you don’t have insurance, then you are the one who will have to handle everything. It could be a full-time job for a while, not to mention the stress and anxiety it will likely cause.

“Forget All That, I’m Just Going to Drive Insurance Anyway!”

Let’s say you’re willing to risk financial ruin by not having car insurance. After all, you’re completely confident you won’t cause a car accident. What’s stopping you from not having any insurance at all AND not applying to use your savings as financial proof?

Technically, there’s nothing stopping you in practice. You can go ahead and drive if you want. The car certainly won’t check for proof before you turn it on. The gas station won’t care when you need to fill up either. You are, of course, now breaking the law though. Maybe you don’t care.

It Could Cost You Big…

The police will though. If you are pulled over and cannot show proof of car insurance (or the liquid savings alternative, if your state allows), then you will get a ticket. The amount varies from state to state, but you can expect a minimum fine of $100 the first time. It’s weird how the totals are calculated though, because it’s well documented online that the ticket will cost about $450 once you add all the additional fees and penalties. This amount jumps quickly if you are caught multiple times. Once you add on the fees and penalties, you could be looking at thousands of dollars. Plus more expensive car insurance if you do decide to break down and start obeying the law.

Yikes! And this is just California. Even though the Golden State is usually one of the most aggressive states in assessing fees and penalties, California is actually rather tame when it comes to fines for uninsured drivers. This means that the penalties are probably even higher if you live in others states.

The Bottom Line About Driving Without Insurance

With all this said, it’s safe to say that you don’t want to risk driving without insurance. Even if your state allows you to substitute proof of cash savings for traditional car insurance, it’s likely not enough. It’s pretty easy for an auto claim is quickly balloon well over the $35,000 mark. Add in the possibility of being held liable in a civil lawsuit, and car insurance is clearly worth the expense.

In the end, I guess being told that car insurance is mandatory may as well just be the truth. You technically don’t need it (in some states), but let’s face it — you really do need it.

Driving without car insurance

Shutterstock

David Ning

Experienced Finance Writer

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs MoneyNing.com, where he discusses every day money issues to encourage the masses to think about their finances more often.

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