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 in...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jul 14, 2021

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  • Whenever you apply for car insurance, you’ll be required to pay before the coverage is bound and active
  • Most carriers will ask for your first payment when you submit your application and others will wait until issuance
  • The state does set a limit to how much insurers can require under the official Consumer Bill of Rights

When you finance a car, most lenders expect you to put at least a small deposit down so that you can secure financing.

Once you sign the lending agreement, it’s time to buy auto insurance on the vehicle so that you can satisfy the lender and the state.

When you’re not able to pay for the entire policy premium when you’re starting your insurance then you’ll probably have to pay a deposit.

See how much you could save on auto insurance. Just enter your zip code in our free quote comparison tool above.

Is requiring a deposit allowed in the industry?

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Auto insurance carriers are generally allowed to collect a specified amount down from new business applicants.

While many people use the term deposit, the money that’s collected from the insurer is a down payment.

A deposit is a portion of the funds that are used as collateral when a consumer is buying a large consumer good.

The term down payment is more appropriate because it’s the amount that you’re required to pay before you can enter into an installment contract with a company.

Down payments show that you’re going to follow through and fulfill your end of the agreement by paying regular installments on your insurance.

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When does your down payment have to be made?

If you have the funds, you can pay the policy in full and you won’t have to worry about making another payment for six months to a year.

As long as the future effective date is more than 30 days away the company will probably allow you to wait and make your down payment when the application has been reviewed and is fully underwritten.

If you do wait until the underwriting period has tended to make your down payment, you won’t officially be covered by the coverage that you’ve selected until you’ve reviewed the final premium.e.

How much is generally required?

Every insurance company has its own requirements. If you’re buying a 6-month policy and you’re required to pay 17 percent of the policy premium, it’s not technically a down payment.

The requirement may be a bit smaller when you’re talking about an annual premium.

It’s when you’re required to make a 20 to 30 percent payment of the total policy premium that you’re technically paying a down payment. The industry standard is collecting a down payment of 25 percent when you’re buying a six-month policy.

Who dictates how high a down payment can be?

If insurance companies were allowed to charge as high of a down payment as they wanted, you might find that most carriers will charge you the full premium upfront.

Luckily, there is a Consumer Bill of Rights in every state that sets rules to protect consumers who are buying insurance.  In most states, the state officials say that insurers can only ask for a maximum of 30 percent down.

Many officials let insurers justify charging their high-risk clients a higher down payment when they have a history of failing to pay their auto insurance premiums in the past.

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What type of installment plans are available?

Most insurance carriers that want to offer flexible billing options will let their new client set up a payment plan instead of paying in full.

When you have a payment plan in place, you’ll have scheduled installments that you can make on the same day of the month.

Some of the most common options include:

  • Monthly EFT
  • Monthly
  • Quarterly
  • Semi-annual

There are companies that won’t charge the maximum down payment as long as you’re willing to set up an installment plan.

Setting up EFT Payments

If you don’t want to pay for the first month and the last month at once, your insurer could waive the requirement if you’re willing to have your deductibles automatically deducted from your bank account.

This withdrawal is often called the EFT installment option. You’ll have to sign an agreement before your payments can be drafted.

It’s possible to find auto insurance that doesn’t require a down payment. To find it, you’ll have to shop around in your state.

Ask your friends if they paid a deposit to see if they can point you in the right direction.

Another option would be to use our online rate comparison tool so that you can find low-cost premiums and navigate through each carrier’s payment options all at the same time.