“No deposit” or “no money down” car insurance is a bit of a misnomer. What actually happens in a “no deposit” or “no money down” auto insurance claim is that the insurer agrees to split up what would normally be paid up front on a 6-month or annual basis into monthly payments. These month-to-month insurance contracts can be cheaper in the short term and can be temporary (30 days) or have a contract for monthly payments for a set amount of time. Additional fees may apply depending on state and insurance company, as noted by GEICO.
Individuals who wish to go with month-to-month plans should always go with well known, reputable insurers in order to avoid falling victim to scams or shady dealing. Most large car insurance companies offer month-to-month premium plans, such as GEICO. There are some low cost options available. But first, let’s explore why car insurance can be so expensive and inconsistent from person to person.
Where to Get the Lowest Rates
While there are many insurance companies that offer insurance at affordable rates, there really is no absolute answer to the question of which offers the most affordable rates. This is because car insurance companies use a variety of weighted metrics to calculate an individual’s premiums, many of which are unknown to the individual. Furthermore, of the known metrics that an individual can control or mitigate, how those metrics are weighted can change depending on other metrics that are out of the individual’s control. Differences in state laws and regulations mean that individuals who are practically identical in terms of risk assessment, but are in different states, could be charged different premiums. On top of all that, choosing an insurance plan involves individual choices, such as deductibles, and month-to-month payments.
The bottom line is that there really is no way for someone to know which insurance company will be the most affordable for them until they request an insurance quote. Let’s continue…
Insurance Premiums and Risk Assessment
Car insurance companies don’t offer a menu of standard rates or plans to individuals. They calculate personalized quotes based on what they deem to be an individual’s coverage risk. This assessment draws from a number of factors, and those factors are weighted based on other factors such as the individual’s gender or age.
Some of the factors that can affect whether or not you get charged a higher premium include:
- Credit rating: Drivers with good credit are considered more reliable by insurers, both in meeting their financial obligations and as drivers.
- Driving record: Drivers with few or no accidents are less likely to be involved in an accident in the near future. The same logic goes for other driving infractions.
- Driving habits: Drivers who drive fewer miles are less likely to be involved in accidents or receive tickets according to insurers’ statistics. Some insurance companies offer discounts for those who drive fewer miles; see our related research on limited-mileage insurance policies.
- Married or registered domestic partners: Couples in stable relationships, according to the statistics insurance companies consult, are involved in fewer accidents, share financial responsibility, and are less aggressive drivers in general.
- Age: Young adults are the highest risk age groups for insurers. On average premiums drop at age 25 and on occasion at age 30. Premiums begin increasing after the age of 65.
- Car make: Cars that are shown to score higher on NHTSA’s (National Highway Traffic Safety Administration) 5 Star Safety Ratings are a good choice for individuals who want lower premiums.
- Home ownership: Many car insurance companies offer discounts for owning a home.
These factors and their weight can change depending on the state you live in and/or whether other factors apply to a specific individual. To show how just one factor can drastically affect the potential premiums an individual could pay, let’s focus on credit score.
A fairly unknown fact is that car insurance companies don’t use FICO credit scores for their credit assessments. According to Consumer Reports, each insurance company uses a proprietary algorithm based on “cherry-picking” a handful of credit metrics out of the full credit assessment to create their own unique credit score for an individual. Each algorithm is kept secret so that individuals cannot use one company’s score to guess at what another company’s score will be. Because of the disparity in factors like this, and because of differences among states, there is no way to determine which insurance company will offer the most affordable plans for a specific individual.
Suggested Article: The List of Car Insurance Companies That Don’t Check Credit
Insurance companies can potentially use factors that aren’t even based on driving risk assessment to determine what premiums they will offer an individual. One such potential “risk” factor that affects what individuals pay in premiums is known as “price optimization.”. According to Insurance Journal, price optimization:
“… [U]ses the economic concept of “price elasticity of demand,” which is a measure of the responsiveness of the quantity of a good or service purchased to a change in its price. Advocates of price optimization have pointed to such non-risk-related items as cross-selling opportunities, consumer retention, and conversion rates as potential benefits of the process.”
In other words, insurance companies can discriminate based on whether or not it assesses whether or not a customer will remain with the company if there are changes in premium costs and if there are indications that they’ll shop around for a better deal, the insurance company will decide to offer discounts or other incentives based on that assessment. Insurance Journal uses the following example:
“Consumer A and consumer B are both women of the same age residing in the same state, with similar driving records, credit history, and other factors. Both A and B have bought auto insurance from the same carrier and pay the same premium. But now A is discovered by the carrier to be browsing multiple insurer websites looking for a better deal on her car insurance, prompting the insurer to gives her a 10% discount. B is not browsing for a better deal online and gets no such offer.”
Many states have considered the practice of price optimization potentially unfair and have banned it. For those looking for cheap insurance options, finding out if their state bans price optimization, and if not, seeing if the insurance companies they’re interested in use this practice should be among their top priorities.
Other Factors That Raise Car Insurance Premiums
It’s not just the individual’s risk that can affect the premiums they pay for car insurance; what other people do with respect to car insurance can affect premiums as well. In the lower 48 states of the US, more than 12% of drivers drive without insurance. According to the Fiscal Times, uninsured drivers cost about 26 billion US dollars annually in damages. Because these 12% have no insurance to cover the cost of the damages incurred, the cost of those damages are usually covered by the people who do have insurance. This results in an increase in premiums for individuals. The number of uninsured on the road varies from year to year, and this in turn is reflected in the calculations that car insurance companies use when setting individual premiums.
Options for Very Cheap Car Insurance with No Deposit or Down Payment
Finding car insurance can be a hassle, especially since an individual has no idea what the cheapest car insurance plan or company would be before actually checking. In lieu of knowing which insurance companies are actually the cheapest, individuals who are interested in acquiring the cheapest car insurance available to them should follow one or more of the options below.
1. Enroll in Affordable State-Run Car Insurance
Depending on your state, it may provide low rate car insurance. Unfortunately, only three states do this.
As mentioned previously, California offers affordable insurance under the CLCA (California Low-Cost Auto Insurance) which allows drivers who meet certain requirements to enroll in its insurance program. Those requirements are:
- Have a valid drivers license.
- Have registration for a current vehicle valued at less than $20,000 and have no unpaid loans.
- Have the initial deposit for payment.
- Make less than the income limit for your household as determined by the CLCA ($29,700 for a one-person household, $60,750 for a 4 person household).
- Accepted documents to confirm eligibility.
- Be over the age of 19.
- Have a good driving record.
Unfortunately, the CLCA does not offer “no deposit” insurance payment options, but rates may be cheap enough to be affordable despite this. CLCA premiums are capped at $388. CLCA maximum coverage includes the following:
- $10,000 for bodily injury or death per person.
- $20,000 for total bodily injury or death when multiple people are hurt in an accident.
- $3,000 for property damage.
There are provisions for certain drivers in Hawaii state law. Qualifying residents may be eligible for no-cost insurance through the state’s Aid to the Aged, Blind, and Disabled (AABD) program.
AABD benefits are available to Hawaii residents who are at least 65 years old, are legally blind, or are totally and permanently disabled. To find out whether you qualify, you will need to contact the Department of Human Services.
Unfortunately, this options leaves out the vast majority of drivers seeking low cost car insurance. For those not eligible for this option, the additional options listed below may be of help.
Again, there is no ‘no money down’ auto insurance in this state. New Jersey offers subsidized insurance through privately run insurance companies called SAIP (Special Automobile Insurance Policy). To be eligible for SAIP, applicants must:
- Currently be enrolled in Federal Medicaid with Hospitalization.
- Have a current valid driver’s license.
SAIP does offer a payment option other than one lump sum per year. The premiums are $360 per year or $185.50 every six months. SAIP coverage is as follows:
- Emergency treatment immediately following a car crash, in addition to costs related to serious brain or spinal cord injuries up to $250,000.
SAIP does not provide you with liability auto insurance coverage, or other medical costs that would be covered through Medicaid.
2. Mitigate Individual Risk Factors and Take Advantage of Discounts
One of the best ways an individual can decrease their premiums is to examine potential risk factors that they have and to make sure they are aware of and take advantage of discounts an insurer may provide. The following factors are a short list of what can lower the premiums for the insured:
- Instructor-led driving courses: Drivers who take driving courses with instructors are found to be involved in fewer accidents and drive less aggressively.
- Insurance bundles: Bundling multiple insurance policies may lower premiums for each individual insurance policy in the bundle.
- Paying on time/automatic payment: Many insurance companies offer discounts for both not having late payments as well as enrolling in automatic payment.
- An installed anti-theft device: Insurers consider cars with anti-theft devices (certain conditions apply) as lower risks.
- Adjust the deductible in the event of a collision: No-Deductible insurance pays the entire cost of repairs after a collision for a customer. Counter-intuitively, it may actually be cheaper for the customer to increase their deductible to get a discount on their premiums.
Having a good score in most or all of the above factors can save individuals up to hundreds of dollars in premiums. Utilizing this option and the following option are good strategies for acquiring low cost auto insurance.
3. Choose Minimum Required Coverage Plans
This is a good way of getting as close as you can to no money down auto insurance. Going to multiple car insurance companies and requesting quotes for a comparison is always a good idea. Those quotes however depend on the coverage plan selected. Coverage is typically broken down into separate components:
- Liability coverage: Provides protection for claims made against an insured in cases where an insured vehicle causes bodily injury or property damage to another person.
- Medical payments coverage/personal injury protection: Provides coverage for medical expenses incurred by the insured or other people as a result of an accident regardless of liability on the part of the insured.
- Collision coverage: Provides coverage for damages incurred in the event of a collision.
- Other-than-collision (also known as comprehensive) coverage: Provides coverage for damages incurred that are not caused by a collision (e.g., fire, theft, vandalism, falling objects, explosion, natural disaster, or civil unrest).
- Uninsured motorist coverage: Provides coverage for damages incurred in the event of a collision involving an uninsured or unidentified motorist.
- Under-insured motorist coverage: Provides coverage for damages incurred in the event of a collision involving a motorist who has insufficient insurance to cover said damages.
Individuals who wish to acquire the least expensive car insurance possible should review the minimum required insurance coverage for their state and choose coverage options that only include those minimums. Here is a list of state coverage requirements (as compiled by Safe Auto).
Finding out what the minimum required coverage is and signing up for a no-frills insurance policy is a great way to cut down on insurance costs.
4. Short Term Car Insurance
If the above options are not viable, there are organizations that offer temporary or day-to-day car insurance to individuals. When researching day-to-day insurance websites, we found that after an extended search we couldn’t find any documentation regarding adherence to insurance regulations, and the “whois” domain registrar information reveals that the nature of these websites were dubious at best. Two of the websites we looked up were actually registered by the same individual/group and was based out of Ontario, so it is unknown if any coverage provided would be honored in the U.S. since the regulatory framework is at the state level. Again, our recommendation is to stay away from these kinds of websites, especially since there are other options available.
For people who already have insurance, most insurance companies allow an individual to add or drop insurance for a particular vehicle temporarily so that they can use that vehicle for a weekend or short amount of time.
For those who do not have insurance of their own already, other options include non-owner car insurance for individuals who do not own a car, but wish to obtain insurance for a vehicle they are renting or borrowing.
Note: It is illegal to obtain insurance for the purpose of registering a vehicle and then drop that insurance.
5. Join a Car Share Program
One last option for individuals who wish to obtain very cheap car insurance is to simply enroll in a car share membership. Members in good standing are covered by the car share’s member insurance policy, and members only need to pay an hourly or daily rate if they do not wish to enroll in a monthly plan. Here’s a few suggestions for individuals interested in using the services of a car share:
For those individuals who are on a tight budget but need to obtain cheap and/or temporary car insurance, these five suggestions can help save a lot of time, money, and frustration when shopping around.
For some inspiration, see how you can pay as low as $18 per month for car insurance.