Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florid...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Apr 3, 2021

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In the United States, nearly all drivers are required to have some form of insurance or financial responsibility before getting behind the wheel.

Auto insurance is the most common form of this coverage, as it transfers most of the risk of financial loss from an auto accident to an insurer, not the driver or car owner.

Unfortunately, not all drivers are able to get affordable coverage leaving them without many options for driving legally.

If you have been denied coverage there is an alternative to traditional coverage called surety bonds. You have to realize you are taking on more of the financial risk however. 

Alternative to Traditional Coverage with No Options Left

The good news is there is an alternative to traditional car insurance in many states, made available to certain drivers in specific circumstances.

A surety bond acts as a replacement for traditional coverage by allowing the driver to work with a surety agency to purchase a bond as a way of offsetting the potential financial risk of an accident.

Thousands of drivers are denied coverage each year. Most experts will tell them to check out “state-assigned risk pools” which is great. However, the price is astronomical and way too high for most. A way cheaper & riskier option is a surety bond. 

Difference between Traditional Coverage & a Surety Bond

Auto insurance works differently in that the insurer providing the coverage pays for any damages, up to the policy limits, after an accident happens.

A surety bond, on the other hand, means the surety agency pays for damages, up to the bond amount, as a form of credit to the driver.

Over time, the amount that was paid as a claim on the bond is repaid to the surety agency.

The benefit of this strategy for drivers is twofold:

Surety bonds can be less expensive than conventional auto insurance, and those who are unable to get coverage can easily get a surety bond.

Surety bond premium compared to high risk driver tradition coverage premium for 5 states.

Note: Illustrated above are 5 states where you can get surety bonds. I used the cost of a yearly premium in each state for a driver considered “high risk”. In California a premium can cost over $4,000 per year. A surety bond premium would only cost $1,750. The difference? With traditional coverage the insurer takes on all the risk. The reason for a higher premium. With a surety bond you will take on all the financial risk. In return a lower price. Plus you can drive legally.

Coverage Denial Reasons

There are several reasons why a driver may be unable to get traditional auto insurance and ultimately turn to a surety bond for coverage.

Main reasons insurers deny drivers coverage. Note: Illustrated above are some of the main reasons insurers are going to deny a driver coverage. If you get a bunch of traffic violations in a short period of time you could be denied. More than likely the cost of your premium will go up. False claims, accidents, and an extremely high performance car are the main reasons.

Insurers review a variety of factors in determining who should – and should not – receive an offer for a new policy and the pricing of that coverage.

When a driver is denied, it could be because:

  • There are numerous traffic violations on a driving record, especially if those violations are over a short period of time
  • There is a history of insurance violations, like lapsed policies or false claims
  • The driver owns a high-performance vehicle
  • There was a serious accident or injury due to an accident in the recent past
  • There was record of a DUI or DWI in the recent past

Most drivers who are denied coverage may opt to shop around with other insurance companies to see if another agency will offer a new policy.

However, when coverage is not available or affordable because of the factors listed above a surety bond is likely the next best option.

Bond premiums compared in 4 states for drivers with low and high credit scores.Note: Since surety companies put all the weight on your financial situation the premium is primarily determined by your credit score. Illustrated above, I used 4 states with the minimum bond amount required for the state. Arizona requires a $40,000 bond. A high risk driver needing traditional coverage will pay approximately $3,100 per year. A driver needing a surety bond will pay approximately $2,400 with poor credit and with good credit approximately $800.

Individuals who own a business that involves a fleet of vehicles, like an auto dealer, may also evaluate their surety bond options as a supplement to or in replacement of traditional auto insurance.

It is important to remember sureties are cheaper. However, they are not safer from a long term financial perspective. If you have a $40,000 bond the surety agency has to pay out. You are on the hook for the $40,000. 

Here’s how to get a surety bond if auto insurance is cost-prohibitive or not available.

How to Secure a Surety Bond for State Coverage

Getting a surety bond as an individual or as an auto dealer begins with understanding the type of bond needed.

Each state provides guidance on what drivers are allowed to do in terms of auto insurance alternatives, so visiting the specific state’s motor vehicle department, either in person or online, is a smart place to start.

Below I have constructed a table of all the states which offer a surety bond as an alternative.

This is up to date and accurate. 

StateBond / Deposit AmountStateBond / Deposit Amount
Alabama$50,000New Mexico$60,000
Arizona$40,000New York$25,000
California$35,000North Carolina$85,000
Idaho$50,000Rhode Island$75,000
Indiana$40,000South Carolina$35,000
Iowa$55,000South Dakota$25,000
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A surety agency that understands the various bond options for auto dealers and individuals can also provide direction on what’s needed.

Once it is determined which bond is required to satisfy insurance requirements as a driver, the next step is submitting an application with a licensed surety agency.

Credit History Factor for Surety Bonds

Because a surety bond requires the owner to repay any claims against the bond in the event of an auto accident, the application process for getting a surety bond includes questions about the individual’s credit history.

Note: In the example above, if you want to get a surety bond the cost of the premium will based on your credit history. A $50,000 bond will cost a driver with good credit approximately $1,250. While a driver with less than good credit will pay upwards of $5,000 for a $50,000 bond.

Surety agencies want to know the driver is not high-risk from a financial perspective, even if they are high-risk from a driving perspective.

Contacting the Right Surety Agency

The right surety agency will work with drivers and auto dealers even if their credit is less than ideal, but the price of the surety bond may be higher for these individuals.

The surety agency may also ask questions about previous surety bond activity, including any claims paid on behalf of the driver.

When a surety bond application is approved, the driver then makes payment to the surety agency to secure the bond.

The good news is that surety bonds cost only a percentage of the total bond amount, meaning this can be a cost-effective alternative to auto insurance.

Drivers should evaluate their options for a surety bond and how the cost fits into their budget before moving forward.

Once the certificate of the bond is received, it is then sent to the state’s motor vehicle or Treasury department as proof of “insurance” for the driver or auto dealer.

Final Thoughts

There are numerous drivers unable to get traditional coverage for a variety of reasons.

Most do not know about surety bonds which have been a cheaper but more risky option for drivers.

If you are unable to get find a carrier for proper coverage you may want to look into surety bonds.

You will be able to drive legal.

If you get pulled over you will not get a ticket for “no coverage”.

Just remember this one important point – you will be financially responsible for the cost of the bond in the event it is paid out in an accident.

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