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Do I get my car insurance deposit back?

Daniel Walker
Licensed Insurance Agent for 15 Years

UPDATED: Mar 19, 2020

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The lowdown...
  • Some insurance companies charge new clients a deposit when they are binding coverage for the first time
  • A deposit is a minimum percentage of the total premium that must be paid before the coverage is activated
  • If you want to pay monthly premiums, you’ll pay the deposit first the and balance will be divided into installments
  • The money that is paid to the insurer is deducted to your balance so it’s not money that you receive back
  • If you cancel your auto insurance early, any of the premiums that have not yet been earned will be refunded back

It costs money to start a contract. Since a file has to be created and paperwork must be printed, the service provider will have to pay administrative expenses. Those expenses eat up potential profits.

This use of money is a huge reason why service providers in many industries that sell intangible products choose to collect a deposit from their new clients to enter into a new agreement.

When you’re buying auto insurance, don’t be surprised to learn that you’ll have to pay substantially more than you usually do to make your first payment. This initial payment may be called a deposit or it might be referred to as a down payment.

Whatever the name, it’s money that must be paid to activate your coverage.

Enter your zip code into our free rate comparison tool above to see the rates of top insurers side-by-side.

Is a deposit always required to initiate coverage?

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You don’t always have to pay a deposit when buying auto insurance. It all depends on the company and also the state. You will have to get quotes from a specific carrier that you’re interested in doing business with to see if you’ll have to pay the down payment.

When you review your payment options and the first installment due is higher than the rest, you’re required to pay some form of deposit through that company.

How much is the typical deposit for auto insurance?

Carriers collect deposits right at policy inception. If you’re buying insurance with a future effective date, you may even pay the deposit before you and the company has even entered business together.

The question that many auto insurance consumers have is how much they’re going to have to pay to buy a new policy.

State officials will have an entire section of the Consumer Bill of Rights that’s dedicated to how much a carrier can charge new clients. If there weren’t limits to how much a carrier could reasonably collect, some companies would collect entire policy premiums upfront.

In most states, the maximum deposit that can be charged is 30 percent of the policy premium.

But be careful; there may also be a provision that says that you can be charged a higher deposit if you’ve failed to make premium payments in the past. Ask the carrier you’re applying with for their specific requirements.

Where is the money that is paid applied?

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Some companies collect deposits and hold onto the money. This money will sit somewhere in your account and will be released to pay balances after a period of time has passed and the account is still in good standing.

This practice is common with the following services providers:

  • electric companies
  • cable companies
  • other service carriers that bill you in arrears rather than advance

Auto insurance is billed differently than most types of service contracts. Since your premiums are set before the coverage starts, it’s easy to calculate how much you’ll have to pay in advance.

That’s why you pay full premiums or payment installments in advance. When you’re paying a deposit, the entire amount paid if being subtracted from the total premium.

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Is there a deposit when you pay premiums in full?

Insurance companies might not even charge you a deposit if you’re paying more than just monthly. If you’re putting aside more money at once to pay premiums, you’re not going to have to budget to cover a higher payment than initially required.

Whenever you pay premiums in full, you’re not going to be charged any money down.

Other Installment Options

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There are so many different ways that you can submit your payments to your insurer. You could pay in full if that were financially feasible, but there are other installment options that are more flexible for the average consumer who is shopping for auto coverage on a budget.

Here are some common installment options that are available to you:

  • Monthly – the balance of the premiums are split up into equal payments for each month of the auto insurance term
  • Auto EFT – your equal monthly installments will be deducted from your account on the same day of each month
  • 5-pay – you’ll pay five equal installments for a six-month plan so that you go a month without any payments
  • Quarterly – you’ll pay premiums once every three months (four installments for annual terms and two installments for six-month terms)
  • Semi-annually – you’ll pay two installments, once every six months, for your annual insurance term

What are earned premiums?

There are two types of premiums that are paid. Earned premiums are premiums that you’ve paid in advance and that the company has already earned. An insurance company earns premiums by extending the coverage.

If the period has past and the coverage has already been afforded, the money that’s been deducted from the account has been earned. It won’t be refunded to you because the carrier fulfilled it’s promised as stated in the contract.

What are unearned premiums?

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Unearned premiums are defined as money that’s already been collected by the company but that hasn’t yet been earned.

If you choose an installment plan where you pay your premiums up for six months at any given time, you’ll almost always have some sort of unearned premium balance sitting on your account.

Until coverage has been afforded for that entire six-month period, the insurer has technically only earned some of the money.

If you pay a quarterly installment and only a month has passed, only one-third of that money is the carriers according to the indemnity contract.

If you were to cancel your coverage, this is very important.

Do you get your deposit back if you pay on-time

With some service providers, you’re rewarded when you make on-time payments. The reward comes in the form of a credit as the deposit is returned to you or deducted from your balance. This isn’t what’s done with your insurance policy.

Since the deposit isn’t a form of collateral to enter the contract, you don’t get it back for paying your premiums on time.

The money paid is automatically deducted from your premium balance. It’s not returned to you as long as you keep your auto policy active for the entire term.

There’s a good chance that you won’t be charged another deposit when you renew the policy because you’re no longer categorized as new business.

Do you get your deposit back if you cancel your insurance?

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If you don’t decide to stay with your insurer and you cancel your policy, you could receive some of your deposit back.

This is where the definitions for earned and unearned premiums come into play. If the premiums have been earned already, you won’t get that money back.

If, however, the premiums are unearned, you are entitled to at least some of the money back.

Some carriers will charge you a fee to cancel your contract. Others don’t charge a fee at all. Look over your policy. You will see the terms pro-rated or short-rated. If you’re refunded all of the unearned premiums on the account, your refund is pro-rated.

If there’s a fee charged, you’ll get a short-rate credit.

You won’t get your deposit back as long as you plan on keeping your insurance in place for the entire term. Now that you know how deposits work, you don’t have to worry about losing out on your hard-earned money.

Start getting online quotes today, compare rates, and then you can see how much of a deposit you’ll have to pay to activate coverage. Enter your zip code below to compare today!

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