If you feel like gambling, you don’t always have to hit the casinos in Las Vegas or Atlantic City. Depending on where you live, you could choose to take part in a perfectly legal game of chance every time you drive your car.
You wouldn’t be wagering on the draw of the cards or a roll of the dice. You’d be betting that you could pass on auto insurance without suffering any financial consequences.
Unlike homeowners insurance, car insurance is commonly mandated by state laws. Most states require residents who drive to have auto insurance that, at the minimum, includes liability coverage. On the other hand, a small minority of states may offer alternatives to minimum insurance and mandatory liability.
Drivers who live in these states have the option to bet against car insurance, but they should also understand what could happen if the gamble doesn’t pay off. Without the protection of liability insurance, causing a wreck could also wreck your finances.
How Does Alternative Insurance Work?
Each state government determines its own car insurance requirements, which means that the rules could change as soon as the next legislative session. As of May 2016, however, the car insurance alternatives in effect include:
Proof of Financial Responsibility — New Hampshire, Mississippi and Arizona
Although car insurance is generally not mandatory in New Hampshire, drivers must demonstrate that they have the financial resources to cover the costs of an at-fault collision. (If you read between the lines, the state regulations essentially say that buying liability insurance is the easiest, most practical solution.) New Hampshire law is less ambiguous about drivers convicted of offenses such as DWI and reckless driving. For them, insurance may be mandatory.
Mississippi has had a minimum liability insurance system since 2000. However, the state’s insurance department website also mentions that a driver may “technically” satisfy the requirements with a cash deposit, security deposit or bond equal to the required amounts.
Arizona offers a similar option to its own minimum insurance requirements. Instead of insurance, a driver may also show proof of financial responsibility with a $40,000 bond or certificate of deposit.
Uninsured Motor Vehicle Fee — Virginia
In the Commonwealth of Virginia, an owner may have the option to register his or her car as an uninsured motor vehicle. The Uninsured Motor Vehicle Fee costs $500 and is good for 12 months.
Why Is Liability Coverage a Big Deal?
Think of liability insurance as an umbrella for a potentially expensive rainy day. If you cause a wreck that injures other people or causes damage to their property, or both, liability coverage can help assist with the resulting costs.
Although you can’t predict what those costs might be, statistics may give you a general idea. The Insurance Information Institute reports that in 2014, the average auto liability claims amounted to:
- $16,640 for bodily injury claims
- $3,290 for property damage claims
Compared with paying several thousand dollars out of pocket due to a collision you caused, paying the average yearly cost of car insurance — $1,222, according to AAA’s 2016 “Your Driving Costs” study — might seem quite reasonable.
Measuring Risk vs. Reward
It’s hard to speculate as to why liability loopholes remain on the books in some states. They could be a pre-1950s relic from a time before states began making car insurance mandatory.
In fairness, states with alternative insurance don’t draw much attention to it. For their resident drivers who do have insurance, protections such as medical pay and uninsured motorist coverage may be required. The Virginia Department of Motor Vehicles website even states the potential risks plainly: “If involved in an accident, the uninsured motorist remains personally liable.”
If you live in one of the states where minimum liability insurance may not be required, you could take the gamble. If luck is on your side, you may be able to avoid collisions and the cost of premiums. Just remember that if you lose, the financial stakes could be high.