Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Aug 12, 2021

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Key takeaways...

  • Some drivers think companies are asking for a security deposit that’s refundable at the end of their policy
  • The size of your down payment will be a portion of the overall cost of the policy
  • The only time that a down payment would be refunded is if a customer canceled a policy that was paid for upfront

An auto insurance policy is a contract between a driver and an insurance company. This contract is usually good for six to 12 months, although short-term policies are also available.

Once the contract term is up, the contract may be renewed or terminated. Most auto insurers won’t require a fee at this point, if the contract is terminated. Sometimes, there can be an early termination fee if you’re looking to go with a different provider or a different plan in the middle of your current term.

To begin a new contract or renew an existing one, a driver will be occasionally be asked to make a deposit upfront, which means that they’ll require an upfront payment to secure their policy. This requirement is not usually for the whole cost of what you’ll pay monthly, but rather a percentage.

The amount required will depend on several different factors, including the insurance company, the length of the contract, and the determined reliability of the driver. An insurance carrier is allowed to look at your driving record. A clean driving history is a great thing to have in situations like these, but isn’t always necessary.

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What is a car insurance deposit? Is it refundable?

Saying that some insurers require a deposit may be a bit misleading. Some drivers think companies are asking for a security deposit that’s refundable at the end of their policy.

It would be more accurate to say that many insurance companies require a down payment to begin a policy.

In most cases, an insurance company will ask a driver to pay a down payment and then make monthly, quarterly, or bi-annual payments.

The size of the down payment will be a portion of the overall cost of the policy.

No insurance provider will begin a policy without first collecting payment. Why would a company insure a driver that has not paid for coverage?

This would provide no guarantee that a customer will pay for any portion of the policy, and then the driver could potentially become a liability, costing the company hundreds of dollars down the line.

However, some insurance providers will only ask for a small fee to begin a new policy. This is done to attract customers that cannot afford to place a large down payment.

In this case, a driver may only be asked for a small payment upfront, which will increase the next payment date.

The only time that a down payment would be refunded is if a customer canceled a policy that was paid for upfront.

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What is no deposit car insurance?

A no deposit car insurance policy is a policy that is paid for monthly. In the past, car insurance providers required customers to pay for a full six or 12 months of coverage at a time.

This makes it easier for drivers to get insurance when they need it. Unfortunately, there are downsides to no deposit policies.

Some disadvantages include:

  • Higher monthly rates
  • Additional fees
  • Automatic withdrawal of payments
  • Possibility of late or missing payments

If a driver decides to pay their premiums monthly, they need to make sure to make every payment. If a driver constantly misses paying their monthly installment on time, their insurance company may cancel coverage.

Drivers must then pay all missing payments to be reinstated. Some companies also charge additional fees to reinstate delinquent customers. So always make sure to make your payments on time.

What are the benefits of paying a car insurance deposit?

The main benefit of paying for a full six months or year of coverage is the savings. Most insurance companies offer car insurance discounts to customers that pay their policy in full.

Just by paying upfront, a consumer may be able to save anywhere from 10 to 40 percent.

Besides receiving no discount, customers that pay monthly will be subjected to other fees. Most companies will add a processing charge to a customer’s monthly premiums.

Month-to-month rates may also be more expensive, especially for high-risk drivers.

Paying monthly also presents a few other problems. A customer may forget to pay their premium, which would cause them to lose their coverage.

Failing to make the required payments may also make it more difficult to obtain coverage in the future. Insurance companies will usually not insure a driver that still owes money to another company.

Gaps in coverage may even affect a driver’s future rates.

How does your credit determine your deposit?

If a driver has bad credit, they may have a difficult time finding a company that will not require a deposit. Insurance companies pay careful attention to drivers’ payment history.

If a driver has been unable to pay important bills in the past, insurance companies will make sure they are paid before extending coverage.

High risk and young drivers may also have a hard time finding an affordable no deposit policy. Even if a person does find a policy that doesn’t require a large down payment, their rates will be significantly higher.

Higher rates will end up making the policy more expensive overall.

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How can you receive a policy without an upfront deposit?

Nowadays, it’s easy to find no deposit car insurance policies. Many insurance companies will accept month to month payment. The main problem is the higher price of these policies.

Before purchasing an insurance policy, drivers need to evaluate their financial situation. If they can afford to pay their policy in full, this is almost always the most beneficial option.

Not only is this cheaper, but drivers won’t have to worry about paying their bill every month.

No deposit policies are usually only beneficial for those that cannot afford insurance otherwise. When looking for these policies, it is exceptionally important for drivers to shop around.

In order to find a good deal in terms of price and coverage, drivers should take the time to carefully review their coverage options.

Carefully comparing car insurance policies is the only way to find great insurance that will be affordable both upfront and over the long term, especially if you’re looking for monthly plans that fit well into your budget.

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  1. https://www.carinsurancecomparison.com/do-you-get-deposits-back-from-car-insurance
  2. https://www.progressive.com/auto/discounts/cheap-car-insurance/
  3. https://www.esurance.com/info/customer-service/why-car-insurance-policies-are-canceled
  4. https://www.directgeneral.com/learning-center/explaining-auto-insurance/high-risk-auto-insurance
  5. https://www.nationwide.com/gap-insurance.jsp
  6. https://www.acceptanceinsurance.com/our-products/auto-insurance/bad-credit-auto-insurance/