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No Deposit Car Insurance – Hidden Fees & Activation Costs

You bought a car – congratulations. You’re now looking at dozens of car insurance sites and comparing rates to find out which one is the lowest. If you saw terms such as “no deposit car insurance” you might be misled to think you’ll pay $0 upfront – this is not true. All insurance companies require at least a few dollars to activate car insurance. GEICO and Progressive offer the lowest rates of $5-6 on average for the first installment and an additional $10 activation fee. The lowest you’ll get in states that don’t require deposits are $15-20 activation fees. This is the absolute bare-bones minimum you’ll pay. Anyone telling you otherwise is trying to one-up you. Car insurance is a legal contract you sign with the insurer and the truth is that you’ll always pay money in advance. When companies advertise no down payment, they actually mean they’ll waiver the first month’s coverage, but you will pay other small fees that the company uses as administrative fees.

Paying Monthly Vs. Annually

If you went for no down payment insurance this means you’re paying by the month and the first month is waivered. The insurer will initially offer you multiple options: you can pay for the year, pay for 6 months or by the month. Most people choose to pay by the month because yearly costs can amount to over $2,000 annually. If you pay upfront you will save 10-20% on average. When you pay by the month you pay more in cumulative charges but this payment option is more manageable because it’s spread out over multiple months and your car insurance is added among other utilities. 

Monthly payments also increase charges for auto insurers. Insurers have to process your payments 12 months a year which tasks their employees with extra work and data management. Hence they have activation fees and administrative fees. Those fees are typically low and never exceed $10-15. On your first month, the lowest installation fee (deposit) + activation fee should be $10 for the activation and $5 for the installation. This will increase the next month as the average cost for car insurance is $100-200 a month. However, it’s not guaranteed you’ll get the low installments. Auto insurers can make you pay more money upfront based on your driving record and car type. If you drive an old car you will typically pay less on your first installment.

Why Auto Insurers Make You Pay Full Deposits

Certain auto insurers won’t offer “waivers” on the first month and you’ll have to pay full price even if the insurer advertises a no down payment policy. This is affected by your past driving record and/or credit score. The following factors determine whether you’ll pay a full deposit on your first month:

  • Bad credit score. If you have a poor credit score the insurer will make you pay the full deposit costs even if you drive an old car. Although a decline in credit score can happen due to reasons such as divorce or loss of job (which you can fix in a few months) the insurance company will only care for your current score and not future potential.
  • Bad driving record. If you made traffic violations in the last 5 years the insurer will take this as a sign that you’re a high-risk driver. Even small violations such as running a red light or speeding 5 miles above the limit will impact your first-month deposit.
  • New driver. If you’re a new driver you will pay a full deposit because you have no experience and the company can’t judge your maturity and level of driving. Typically younger drivers under 25 pay 2-3x more in premiums than mature drivers.
  • High-value car. If the car is high-value or new the insurance company will require full deposits and charge you higher premiums. Insurers are wary of new cars because they have electronics that are expensive to repair.

Note: Auto insurers take every sign of a high-risk driver and assign higher fees even if they pay on an annual basis. The most high-risk drivers are young drivers and drivers with previous violation records/bad credit scores. Auto insurers care about how much a person will cost them in the event of an accident and your car type will impact your premiums. Even if you have a spotless driving record, a credit score in top shape and you’re a mature driver – you will still pay more if your car is spanking new because that car would require more to fix.

Is No Deposit Insurance A Fraud?

The short answer: Yes. No Deposit ($0 payment) insurance does not exist for two reasons: 

  1. You will always pay activation/administration fees – those fees can be as low as $10-15. 
  2. Even when you pay a “deposit” it’s not actually a deposit, because the company will never return the money back. 

Many auto insurers advertise no deposit policies but they really mean that they lower the first monthly installment or you only pay for the administrative fees. Either way, if you stick to the largest insurers such as GEICO and Progressive you can get away with paying as little as $15 to activate your package and cover your first month’s installation. This is a good price to pay to get car insurance if you want to satisfy your lease terms or you need insurance fast as driving without insurance is illegal in all states except New Hampshire and Virginia. 

3 Ways To Lower Your Activation Payment

It’s viable to avoid paying administrative fees when you activate car insurance which is why you have 3 ways to lower the costs to a minimum:

  1. Analyze insurance plans. Each plan will offer different deposit terms – pick the one that offers the lowest deposit terms. In most cases, a company will require you to pay the first month’s premium to activate the insurance. Once you find a company that doesn’t require you to pay the first premium but only a small down payment, you only have to pay a deposit (as low as $5). Then, when you add the administration fee which is typically $10-15, you can get away with paying $15 for the whole month.
  2. Buy pay-per-mile insurance. If no down payment insurers are not present in your market, the lowest insurance will always be pay-per-mile insurance. The first billing cycle will serve as your security deposit and then you’ll only have to pay for the next month (and the extra costs for miles you drove over the limit).
  3. Discover first-month waivers. Many companies will offer deals to lure in new customers – insurers will completely slash the coverage on your first month. However, keep in mind these offers will only apply to safe drivers with a clean record. If you have even a minor violation on your driving record you will always pay for a full month in advance.

Avoid Agencies Offering No-Deposit Insurance

There are 3rd party agencies fronting as middle-men who can identify no deposit car insurance for you. They will typically charge you a fee for their quoting system and mislead you into believing that you will get no down payment/$0 insurance. None of the reputable companies offer insurance without at least putting up a few dollars for the initial administrative fees and/or small payment if they waiver your first month. Keep in mind that you will always have to pay a few dollars to activate a plan.