Self-insurance option for auto insurance in TX (601.122)

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BeerMoney
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Self-insurance option for auto insurance in TX (601.122)

Post by BeerMoney »

There is apparently a law in Texas that allows you to self-insure to prove you can fulfill your financial responsibility in the event of an auto accident. However, for most people the only option that looks possibly worthwhile is to deposit $55,000 worth of securities with the comptroller.

Here it is:

http://www.statutes.legis.state.tx.us/D ... tm#601.122

http://aixtcp.cpa.state.tx.us/opendocs/ ... 2551l.html

Has anyone done this? How hard was it to get money in/out after you let them hold onto it? What happens to the dividends? Can you do anything like change what you're invested in while they hold onto it? Any other big catches with doing this? It seems like it could be a great option.

If nobody knows I guess I need to call the number they provide since I can't seem to find anything else online about applying for this.

123
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by 123 »

California has a similar option for establishing financial responsibility. In California one of the options is a cash deposit with the DMV. At least in California I would expect that the person making the deposit would gain no interest, income, or dividend from the deposit. I would expect that if an individual made a cash deposit to establish financial responsibility it would take a significant period of time to get the money back, primarily because I would think the deposit would have to remain until the statute of limitations expired on the time period covered by the deposit.

In California the $35,000 deposit only addresses the minimum required insurance limits (15/35/5). Many fender-benders can exceed the $5K property damage easily.

I'm guessing in California that if someone had $35,000 cash available for deposit with this program they probably have other significant assets that they would be better off with regular auto insurance coverage. Having the option for such a deposit can enable many people to drive legally who otherwise might not be eligible for auto insurance or who simply wish to self-insure. In California the deposit program does nothing to limit liability in an accident.

Last edited by 123 on Wed Sep 10, 2014 1:31 am, edited 1 time in total.

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kramer
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by kramer »

madbrain wrote:Why would anyone want to do this, unless they are denied coverage by every insurer?

Agreed. $50,000 of liability coverage is simply way too low for anyone with assets or earning power, present or future. And if you have $50,000 to spare, it would make more sense to go ahead and buy liability insurance and to buy more than the minimum.

pshonore
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by pshonore »

Also remember that if you have any kind of liability insurance (including auto), there is in theory, no limit to how much the company will spend to defend a suit against you. If you self-insure by putting up cash, collateral, etc with the state, who's going to pay the attorney ? Simple answer - YOU. Depending on the particular line of insurance, legal expense can be a significant part of claim $.

deikel
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by deikel »

indeed not sensical IMO:

55k invested should return you around 6% a year (average over many years) which equals >3k a year - I would be surprised if auto insurance is so much more in Tx than my state, but I get my car covered for less than 1k with 'unlimited' coverage - I believe to be 2 million...

The math does not add up, so insurance appears cheaper, with better coverage than self insured. Even if more expensive, the potential downside is so much worse than the upside and car accidents are not even a low frequency event....

Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

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BeerMoney
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by BeerMoney »

deikel wrote:indeed not sensical IMO:

55k invested should return you around 6% a year (average over many years) which equals >3k a year - I would be surprised if auto insurance is so much more in Tx than my state, but I get my car covered for less than 1k with 'unlimited' coverage - I believe to be 2 million...

The math does not add up, so insurance appears cheaper, with better coverage than self insured. Even if more expensive, the potential downside is so much worse than the upside and car accidents are not even a low frequency event....

I was thinking the only way it would make sense is if you get to keep the dividends/capital gains/interest on your deposit. That way instead of paying however much in insurance premiums per year you could instead just invest that money.

I'm not sure you actually do get to keep the dividends/capital gains/interest, guess I'd need to call and find out the details on that as well as when/how you can take your money out.

I didn't know that the insurance company would actually spend more than the liability limit you bought on your policy if you are sued as pshonore mentions. Guess they'd rather pay their own attorney's fees instead of paying out to the person suing you? Seems like a losing proposition for the insurance company if they other side lawyered up and it was clearly your fault in the accident. You would think that if they decided it was pretty obvious that you were going to lose in court they'd just pay out up to the liability limit you bought and any extra would get stuck on you.

RoboticOwl
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by RoboticOwl »

I wonder if there is an equivalent of a high deductible health plan for auto insurance. You accept a 15k deductible / self insured retention in paying for third party liability claims, and the insurance company covers everything above that, and also handles claims administration, defense, etc. Of course the insurance company would want to underwrite your ability to pay the deductible, since presumably, state financial responsibility laws would require them to technically need on the hook.

skepticalobserver
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by skepticalobserver »

Keep in mind what you'd have to pay an attorney in the event you're sued. Insurance premiums in no small part cover the cost of legal representation. Insurance companies usually hire good attorneys. The fees, even for a mediocre attorney, could easily run into five figures.

$55,000 is way too low. Also, what about uninsured motorist (UM) coverage in the event the guy who hits you has no insurance?

mikep
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by mikep »

RoboticOwl wrote:I wonder if there is an equivalent of a high deductible health plan for auto insurance. You accept a 15k deductible / self insured retention in paying for third party liability claims, and the insurance company covers everything above that, and also handles claims administration, defense, etc. Of course the insurance company would want to underwrite your ability to pay the deductible, since presumably, state financial responsibility laws would require them to technically need on the hook.

That already exists as umbrella insurance, but you'd need a lot more than 15k or even 55k. They probably would not write it without an underlying policy anyway.

madbrain
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by madbrain »

RoboticOwl wrote:Of course the insurance company would want to underwrite your ability to pay the deductible, since presumably, state financial responsibility laws would require them to technically need on the hook.

And how would the insurance company do that ? Even if they can ascertain that you have the assets on the day the insurance company "underwrites" you, you might not have them later on when you are actually involved in an at-fault accident. Then, how could you comply with the state minimum liability requirement ?
The answer is that you wouldn't. That's why states require you to be insured, and a few states allow you to buy a bond in the amount of the liability insurance.

My guess is that if people were allowed to buy a high-deductible auto insurance plan, and these actually cost much less than other plans, too many deadbeats would try this, then would end up getting caught with their pants down and unable to pay. Said deadbeats could then potentially end up in jail for driving without financial responsibility, and become a burden on society. We don't really want to go there.

At least with high deductible insurance health plans, the ones who suffer the consequences are first and foremost those who choose those plans, and are effectively underinsured and hosed if they can't meet the high deductibles. With auto liability insurance, it's everyone else that would suffer first in the event a high deductible couldn't be met.

simpsonlang
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Re: Self-insurance option for auto insurance in TX (601.122)

Post by simpsonlang »

Florida has something similar but it's based on net worth from a notarized financial statements listing $40,000 in assets with restrictions on what can't be counted (Can't include primary residence). I agree this sounds a bit iffy for an individual and maybe it's more geared towards businesses?

http://www.flhsmv.gov/ddl/frfaqself_person.html

The certificate of self-insurance issued by this department as per section 324.171, Florida Statutes, provides limits of liability insurance in the amount of 10/20/10 ($10,000 of bodily injury to, or death of, one person in any one crash, $20,000 of bodily injury to, or death of, two or more persons in any one crash, $10,000 of injury to, or destruction of, property of others in any one crash) and personal injury protection coverage as per section 627.733(3)(b), F.S.