Can a Surety Bond Replace Actual Car Insurance? – When it comes to the financial responsibilities of automobiles, having insurance is very important as it acts as a safety net, offering financial protection against unexpected threats and risks on the road. However, among the conventional options available, one of the less popular paths in the form of surety bonds, raises the question: can a surety bond replace actual car insurance?
If you would like to find the answer to this question, keep reading through this guide to find out the roles and benefits of using these substitutes when searching for financial protection.
What is a Surety Bond?
A surety bond is a legally signed contract among three parties which include; the principal who is the person or party who needs the bond, the obligee, who is the party asking for the bond, and the surety which is the party that offers the bond. Thus, the surety bond makes sure that the principal will fulfill their responsibilities to the obligee. However, if the principal fails to do so, the surety will step in to handle the financial losses incurred by the obligee. But this is up to the bond amount.
How Does It Work?
How does a surety bond work? When it is issued, the principal will have to pay a premium to the surety company which sets the bond amount and review the risk. However, if the principal does not fulfill or meet their obligations, the surety will reimburse the obligee, but the principal will remain responsible for repaying the surety for the payouts made.
Can a Surety Bond Replace Actual Car Insurance?
Yes, a surety bond can be used to replace actual car insurance, however, this is only allowed in certain states. 32 states allow people to deposit in lieu or post a bond for auto insurance. Meanwhile, surety bonds cannot replace actual car insurance. This is because they both serve different purposes even though they both offer financial protection.
Car or auto insurance protects policyholders against financial losses as a result of theft, accidents, or damages to the vehicle. A surety bond, on the other hand, serves as an agreement of performance or payment for specific legal requirements or contractual responsibilities. For example, fulfilling or licensing a government contract.
States That Allow Drivers to Use Bonds Instead of Car Insurance
Here is a list of the states that allow drivers to use surety bonds to replace their actual car insurance:
| State | Amount Required for Surety Bond |
| Alabama | $50,000 |
| Arizona | $40,000 |
| California | $35,000 |
| Colorado | $35,000 |
| Delaware | $40,000 |
| Idaho | $50,000 |
| Indiana | $40,000 |
| Iowa | $55,000 |
| Louisiana | $55,000 |
| Maine | $127,000 |
| Maryland | $75,000 |
| Massachusetts | $10,000 |
| Mississippi | $15,000 |
| Missouri | $60,000 |
| Montana | $55,000 |
| Nebraska | $75,000 |
| New Mexico | $60,000 |
| New York | $25,000 |
| North Carolina | $85,000 |
| Ohio | $30,000 |
| Oklahoma | $75,000 |
| Rhode Island | $75,000 |
| South Carolina | $35,000 |
| South Dakota | $25,000 |
| Tennessee | $60,000 |
| Utah | $160,000 |
| Vermont | $115,000 |
| Virginia | $50,000 |
| Washington | $60,000 |
| Wisconsin | $60,000 |
| Wyoming | $25,000 |
Surety Bonds vs. Insurance Policy: What’s the difference?
What is the difference between surety bonds and insurance policies? Some differences exist between insurance policies and surety bonds. First of all, the purpose, the parties involved, and the claims process. Another factor is the risk exposure. Surety bonds guarantee payment or performance while insurance policies, on the other hand, provide financial protection against certain risks.
Secondly, insurance policies just involve 2 parties which are the insured/policyholder and the insurance company while a surety bond involves 3 parties which are the principal, obligee, and surety.
Moving on to the claim process, for the surety bond, the obligee will file a claim against the bond if the principal does not fulfill their responsibilities. Meanwhile, for insurance policies, the policyholder files a claim with the insurance company for covered risks.
Who Needs a Surety Bond?
People who should consider buying surety bonds instead of buying auto insurance include:
- Individuals who can afford to pay out-of-pocket for at-fault car accidents.
- Government agencies.
- People who cannot buy car insurance.
- Businesses.
- Contractors.
Defendants might need to post a surety bond to get an appeal or release.
How To Get Surety Bond to Replace Actual Car Insurance
If you need to get a surety bond for specific reasons related to your vehicle, here are the steps you can follow to get one:
- Determine the bond requirement.
- Find an insurance bond provider.
- Start the application process.
- Underwriting process.
- Bond issuance.
- Keep the bond active.
You might need to renew your bond annually and follow the ongoing responsibilities. Meanwhile, if you do not know where to buy surety bonds, some companies sell security bonds.
Car Insurance Alternatives
Even though there are no direct alternatives to auto insurance when it comes to protection against vehicle-related threats and legal requirements, here are some alternatives that you can consider:
- Self-insurance.
- Insurance bond.
- Cash or securities.
- Paying an uninsured motorist fee.
- Usage-based insurance.
Even though you can get additional protection in certain situations with these, it does not entirely replace primary car insurance.