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Drivers often believe that all is lost if their auto insurance application is denied because they’re deemed to be high-risk motorists. While it’s true that auto insurance is necessary for most states, there is still an option available for high-risk drivers: an auto insurance bond.
Also referred to as an SR-22 surety bond (or SR-22 insurance), it is a three-party agreement that works like insurance, but with some key differences. You might ask yourself, “How do I create a bond for auto insurance?” In this guide, we’ll talk about what SR-22 bonds are, when they’re required, how they differ from regular car insurance and how to get them.
Our research team has also reviewed the best car insurance companies to find you the greatest deals, especially if you’re a high-risk driver. Enter your zip code below and receive free insurance quotes from providers in your area.
What is a Bond for Auto Insurance?
The SR-22 surety bond is typically a three-party agreement between the state, the driver – and the insurance company that agrees to provide the bond. Essentially, the bond acts like a legal guarantee to the state that a driver has the financial means to pay for damages to the other party in an accident that they cause.
These surety bonds can be elected by drivers as an alternative to regular car insurance, but the state can also mandate high-risk drivers to get them. In that situation, the high-risk driver will have no choice but to get the bond or they won’t be able to legally drive. Most auto insurance bonds are three-to-five-year contracts.
How Do SR-22 Surety Bonds Work?
With SR-22 surety bonds, the insurance company sets aside a specific amount of money in case the driver gets into an accident. The driver typically pays a premium to the insurance company in exchange for this bond. However, while this bond sounds like regular insurance, it actually acts more like a loan.
To be clear, the SR-22 surety bond is not an actual legal loan, but it is an amount the driver will be expected to pay back if the insurance company has to use it.
If a driver causes a road accident, the insurance provider will use the bond to pay for the damages to the other driver (up to the bond’s amount). But, the bonded driver will have to pay the insurance company every penny back for the bond – on top of the premium they already pay.
When a provider proves to the state that the driver can pay for an accident, what it’s essentially stating is that a driver can afford to pay their premium and for the company’s bond if it gets used.
How to Create a Bond for Auto Insurance
Technically, you don’t “create” the bond yourself. In fact, you don’t even file the bond yourself. Whether you’re opting to get an SR-22 bond or you’ve been court-ordered to get one, here are the steps you need to take:
- Contact your state’s motor vehicle department. Ask about the requirements for obtaining an SR-22 bond. In most cases, you’ll have to provide proof of financial responsibility and fill out some paperwork.
- Find an insurance company that offers SR-22 bonds. Not all insurance companies offer this type of bond, so you may need to shop around to find a company that does.
- Fill out an application and pay the premium. The surety company (the insurance provider) will then file the SR-22 bond with your state’s Department of Motor Vehicles (DMV) on your behalf, and you will be able to legally drive again.
How Much Does an Auto Insurance Bond Cost?
Because there are several moving financial parts of an SR-22 bond, there are three specific payments that are involved with it:
- Filing Fee: It typically costs just $25 to file an SR-22 bond. Even if you’re not filing one yourself, this money will go to the DMV.
- Bond’s Amount: The amount of money required for the bond varies from state to state, but the surety company is usually mandated to have around $50,000 to $75,000. You won’t have to pay this off as long as you don’t cause an accident.
- Premium: Premiums can range roughly from $250 to $1,500 or more, but the cost will depend strongly on your credit history. Drivers who have bad credit will typically have to pay a higher premium.
Remember that the premium is not what pays for the bond’s amount. The premium is a fee on top of the bond. If you want to know how much a car insurance bond will cost you, contact some companies that offer SR-22 bonds and get quotes directly from insurance agents. This is the best way for you to compare rates and find the best deal.
How to Find a Suitable Surety Company
To be clear, you don’t have to go directly through an insurance company to get a surety bond for auto insurance. Some surety bond firms will create the bonds and give the paperwork to your car insurance company.
But whether you use a firm or a regular insurance company, you should keep a few things in mind when looking. Here are the basic things you should do:
Check the Company’s Financial Rating
When a person needs a surety bond, the surety company must be financially strong. The last thing you want is for your bonding company to become insolvent and unable to back up the bond.
A strong financial position also allows the surety company to:
- Weather tough economic times
- Maintain its ability to pay claims
- Invest in new products and services
- Continue providing excellent customer service
AM Best is a great resource for checking financial strength in businesses. The company specializes in business and financial assessments, and gives letter ratings based on its in-depth industry research.
Make Sure the Company is Licensed to Do Business in Your State
When hiring a bond company, you’ll want to be certain this company is licensed to do business where you live. Each state has different surety bond requirements. If the surety company is not licensed in your state, it may not be familiar with the specific requirements of your bond. This could lead to problems down the road if the bond needs to be called.
Ensure the Company Has Experience in Bonded Car Insurance
There are a lot of intricate details involved in bonded car insurance, and you want to be sure that your provider is competent at what it’s doing.The good news is that there are plenty of reputable companies out there that can offer you the coverage you need.
Start by doing some online research, and then contact a few providers to get quotes. Once you’ve found a few companies that seem to be a good fit, ask about their experience with bonded car insurance.
What is an SR-22 Auto Insurance Bond for?
The purpose of creating a bond for auto insurance is to protect other drivers on the road from being financially responsible if the high-risk driver causes an accident.
This is something to keep in mind if you’re considered a high-risk driver by insurance companies, even if you haven’t been ordered to get an SR-22.
An SR-22 may be required of you in the following circumstances:
• You drive without having the bare minimum insurance in your state.
• You possess excessive traffic tickets.
• You have a record of non-payment of child support.
• You have been found guilty of a significant driving infraction, such as one involving drugs or alcohol.
• You require a restricted driver’s license.
While SR-22 bonds are generally less expensive than traditional auto insurance, if you don’t want to be forced to get one, make sure you drive as safely as you possibly can.
Things That Can Invalidate Your Car Insurance Bond Policy
There are a few things that can invalidate your auto insurance bond policy, including:
• Not paying your premium
• Failing to maintain insurance coverage
• Committing fraud
• Being convicted of a DUI
The penalty will typically mean that you’ll have your license suspended or completely revoked, so it’s important to maintain your finances and drive safely.
Ways Auto Insurance Bonds are Different from Traditional Car Insurance
Still confused about how auto insurance bonds differ from standard car insurance? The two auto insurance options differ across five key factors:
|Traditional Car Insurance||Auto Insurance Bonds|
|How does the money work?||You’re not expected to pay back whatever amount in damages an insurance company pays when you get into an accident. If you pay your premiums and deductibles, your part is usually done.*||You’re expected to “return the bond” if the insurance company has to use it. If you cause an accident, the provider will pay for the other driver’s damages up to the amount agreed in the bond.|
You must pay back however much of the bond the insurer used – on top of the premium you already pay.
|Who is liable?||Car insurance assumes liability for accidents and pays for damages i, regardless of who is at fault (though this depends on how insured both driving parties are, whether they’re in a no-fault state, etc.)||Because you’ll pay back any bond money the surety company uses for your car accidents, you assume total liability. You are entirely financially responsible for any damages you cause while driving.|
|When is it required?||Liability insurance is required in every state except New Hampshire and Virginia. Medical payments coverage or uninsured motorist coverage is required in some states.||In most states, a car insurance bond is only required when a driver has been convicted of a DUI, DWI or other serious traffic violations. Also may be required if a driver has had their license either revoked or suspended.|
|How is the cost determined?||The cost of a car insurance policy is based on many things, including: your driving record, your vehicle, where you live, your age, and more.||The cost depends more strongly on your credit score. The better your credit history, the lower your premium will be. Premiums for SR-22s can be significantly less than regular car insurance premiums.|
|What happens if you stop paying?||You’ll lose the insurance, but you’ll have the option to buy a new policy with another insurer.||Your license and legal driving privileges will be suspended.|
Why Do SR-22 Bonds Work This Way?
It’s important to understand that surety bonds are not just for auto insurance. They apply to many different situations, and are often used in business industries to ensure specific action. In essence, a surety bond is a three-party financial agreement that guarantees the performance of someone.
The three parties involved are the:
- Surety: The company that guarantees the bond, and therefore “guarantees” that the principal will fulfill their requirements of the bond.
- Principal: The professional or business that must purchase the bond. But in the case of auto insurance bonds, this would be the driver.
- Obligee: The party that requires the principal to purchase the bond. In an SR-22 case, this would be the state.
In a standard surety situation, if the principal does not fulfill their obligation in a contract (so for auto insurance, this would be the driver causing a car accident) the obligee can make a claim against the bond to collect reparation for damages.
This is usually the state, collecting money from the insurer to pay for the damages to any drivers injured in an accident against the bonded driver.
Our Recommendations for Auto Insurance
Insurance for your vehicle is an essential part of being a responsible motorist. On the other hand, finding the appropriate policy can be tricky. Because of this, it is crucial to gain access to a comparison tool to evaluate multiple auto insurance quotes.
To help you make an informed decision, here is some valuable information about three relatively cheap auto insurance providers: GEICO, Progressive and State Farm.
GEICO: Best Discounts
GEICO has some of the most affordable car insurance in the country, and is known for its wide variety of coverage and its discounts. The company gives customers great add-ons such as roadside assistance, classic car insurance and rental reimbursement.
GEICO clients also enjoy discounts such as:
- Good driver discount
- Seat belt use discount
- Driver’s education course discount
- Good student discount
Progressive: Best for High-Risk Drivers
Progressive can be a great choice for drivers who’ve had any at-fault accidents or DUIs in the past few years. Some of Progressive’s add-on coverages include loan/lease payoff, deductible savings bank and accident forgiveness. Here are some (but not all) of the discounts that Progressive offers:
- Multi-policy discount
- Pay-in-full discount
- Homeowners discount
- Teen driver discount
Read more: Progressive insurance review
State Farm: Best Overall
State Farm is a great provider for drivers under 25, because it has the best good student discount in the industry, with up to 25% off premiums. High-risk drivers can take part in State Farm’s usage-based driving program Drive Safe & SaveTM, which can help take up to 30% off their premiums.
State Farm also offers these great discounts and more:
- Passive restraint discount
- Anti-theft discount
- Multi-car discount
- Distant student discount
What is a bond in car insurance?
A car insurance bond (also known as an SR-22 bond or SR-22 insurance) is a three-party agreement between a driver, an insurance company and the state. The bond acts as a legal guarantee to the state that the driver can pay for damages in an accident that they cause. This promise is kept by the insurance provider that uses the bond to pay for an accident on the driver’s behalf, in exchange for a premium and the legal obligation that the driver will pay back the bond if it’s used.
Do insurance companies offer bonds?
Some insurance companies offer auto insurance bonds, and some don’t. Because bonds can be state-mandated for certain high-risk drivers who have histories of getting into accidents, insurers know that if they agree to a bond for a high-risk driver, it will likely be used. So, the insurer must know if the driver will be able to pay the bond back before the company agrees to provide one. The higher risk of financial loss is why some insurers don’t offer bonds.
What happens if you violate the terms of your auto insurance bond?
If you violate the terms of your auto insurance bond, the surety company that issued the bond may be required to pay damages to any party that suffers losses as a result of your actions. The surety company will then require you to reimburse it for any money it has paid out.
How long does a car insurance bond last?
A car insurance bond typically lasts for three to five years, so long as you do not violate the terms of the bond.
What is the minimum amount required for a car insurance bond?
The minimum amount required for a car insurance bond typically starts at $25,000 but may be higher depending on your state’s requirements. Bonds for $50,000 to $75,000 are common.