No deposit insurance - does it even exist?

Why will no insurer give me car insurance without demanding a deposit upfront?

Traditionally car insurance could only be bought by paying a premium in advance. A few companies – very few – allowed motorists to pay monthly for their policies, but they always wanted a substantial deposit first.

Come the Internet and paying a reasonable sum upfront with regular payments to cover the balance became widespread, purely because of the heavy competition online – as soon as one major company began offering extended payments, they all had to. However every single insurance company in Britain, if not the world, requires at least a small deposit before they will issue a policy.

Then why do I see offers for 'no deposit' insurance?

It is simply a marketing ploy. Companies that claim to offer this hope to entice more business from hard up drivers.

Why can't I get insurance without paying a deposit?

There are several reasons for this:

  • It simply wouldn't be legal. Under contract law (at least in the United Kingdom and most of the developed world) every contract has to have a benefit for all the parties involved before it is enforceable. In other words; if an insurance company issues a policy then the policyholder benefits from the protection that it provides. The insurer must also benefit in some way, and that is by receipt of a premium, or at least a part payment towards a premium.
  • If no payment was provided at the time the policy was issued then insurance fraud would increase dramatically. Dishonest people would be able to take out a policy, and benefit from it's protection until the unpaid insurer cancelled it. The miscreant could then simply take out the fresh policy with another insurer, without again paying out a penny.
  • If a customer was to be offered insurance on a monthly paid basis the insurer would have to be reasonably sure that the payments would actually be made. If that customer couldn't even raise the money for an initial deposit then a default on payment would be far more likely.

Because of these reasons every insurer will insist on at least something in advance.

How much deposit would I reasonably be expected to put down?

This varies from one insurer to another but it usually depends upon the applicant's credit rating. Someone over 50, for instance, may be able to buy a policy after putting down as little as one 12th of the total premium; but a young driver without a long credit record and who was most probably earning a lot less money than an older person would be expected to put down more. As a rough guide, most companies would expect at least 20% of the premium as a down payment.

What happens if I cannot afford to pay a deposit?

Driving a car can be expensive with not only insurance but road fund licence, petrol, servicing, and repairs to take into consideration; and this is without even thinking about keeping up hire purchase payments, if any, on the car. To keep a car on a road it is essential to have at least enough in the bank to cover both unexpected expenses as well as regular ones and so someone who cannot afford to put down about a fifth of a car insurance premium should really think twice about whether running a car is affordable or not.

People who only need a car from time to time, including for example students at University, often buy a few day's or a few week's cover from a short-term car insurance company; in between policies a SORN declaration must be made in order to comply with the law. However under no circumstances should driving without insurance be risked. Apart from the fact that having an accident whilst uninsured could be financially and emotionally catastrophic the police have so many detection tools available to them that getting away with it is now virtually impossible.