What Is An Auto Insurance Bond?

An auto insurance bond is a surety bond or cash deposit that is usually used by drivers who have a SR22 requirement or by people who don’t drive frequently and don’t want to pay consistent amounts of money for a traditional auto insurance policy. It is also known as self-insurance and used by the state where you reside in to verify that you meet the minimum financial responsibility criteria.

To get started, you must get either one of these:

• A surety bond issued by a surety company that the DMV works with;
• A DMV bond of a set amount (values vary from one state to another and the amount is generally the minimum liability insurance asked by that state) secured by liquid equity (cash or other liquid collateral);
• Government bonds deposited with the local Treasurer (some states accept bank deposits too).

In the event of an accident, the surety company will pay for the damages up to the bond’s value, just like an insurance company would, but will charge you for that amount. The difference, therefore, is that with insurance companies you pay a premium in exchange for them taking on the risk, while with an insurance bond you are responsible for everything.

When the regular insurance premiums outweigh the risks, getting an insurance bond may be a good choice. It could be a good alternative to SR22 insurance, where premiums cost an arm and a leg, or the preferred choice for people who drive infrequently and getting a regular policy would be pointless.