Bond Vs. Liability Insurance

All drivers must demonstrate some form of financial responsibility.

Every driver must demonstrate the ability to cover loss caused to others with their vehicle, whether it is for personal injury or property damage. In most states, a minimum liability insurance policy is required, but in other states, drivers are given other options. These "self-insuring" methods including carrying a bond, or posting a cash deposit.

Bond

Some states allow drivers to demonstrate financial responsibility with their own personal resources. In Alabama and California, for example, drivers can post a surety bond with a bonding company, or deliver a cash deposit to the Department of Motor Vehicles. The amount of the bond can vary from $35,000 in California to $50,000 in Alabama.

Liability

Liability insurance is designed to assume just that--liability for covered events. The insurance company agrees to assume the financial responsibility for covered events in exchange for premium payments from the policyholder.

Differences

In the case of a surety bond company or a cash deposit, the person posting the bond has no representation, while an insurance company will conduct an investigation and even provide legal defense in some cases when there is a covered event.

References

• California Department of Motor Vehicles: Evidence of Financial Responsibility
• Essortment: State of Alabama Auto Insurance Laws
• Car Insurance: Coverage Definitions