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I have a friend who just immigrated to the USA and just got a driver's license for the first time (he's never had a driver's license before, either in his previous country or in the USA). Now that he's looking around for auto insurance, he's finding that all companies are asking him to pay some money up front. He is quite unfamiliar with insurance and obtaining it and there is a bit of a language barrier. He tells me that this up-front money is a registration fee that the insurance companies are requiring (except for one quote which he told me the up-front money was a down payment). I don't know whether he's misunderstanding what the money is actually for or if he is actually being required to pay a registration fee. A registration fee sounds like a scam to me.

  • Are registration fees for first-time drivers common for auto insurance policies?
  • If these are indeed down payments being required by the insurance companies, how does that work? Are down payments applied toward the remainder of payments for the policy term? (The amount of down payments he's being quoted are in excess of a single month's worth of premium.)

He's living in NJ, if that's important.

  • It's been a long time since I was a first-time driver, and never "started from scratch" (went from parents' policy to my own policy). Having said that: I've never heard of registration fees for insurance policies, but things change in 30+ years. Also, expensive northern states do things different than down in God's Country. As far as down payments: the very nature of the phrase means that it reduces the monthly payment amounts. – RonJohn Feb 11 '18 at 4:09
  • How much in excess of a single month's worth of premium? Auto insurance is regulated by states, so will vary, but I have always been billed for six months' coverage at a time, with the option of paying either the full amount in advance, or paying it monthly for an additional fee. – user4556274 Feb 11 '18 at 11:02
  • @user4556274, ~1.2 - 2 times the monthly payment – NeutronStar Feb 11 '18 at 15:06
  • Does the sum of the d/p plus monthly payments equal the premium? – RonJohn Feb 11 '18 at 16:29
  • I'm a bit confused. While I've no experience of New Jersey, in most states it's the car that's insured, not the driver. While every state is different, in most you need to have minimum liability insurance on a car before you car register it with the state, and if you're buying a car on a loan, the finance company will also insist on C&C insurance. The insurance company wants payment up front, as explained in the answers. – jamesqf Feb 11 '18 at 18:49
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US Car insurances typically expect that a premium is paid before (or right when) the insurance starts. I am not aware of it being called a downpayment, but that would be a valid name.

The point is that the moment they agree to coverage, they are on the hook for potential damage; if he then simply never pays the premium, they have to fight to get out of it - which they avoid by getting paid upfront.

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When I have purchased car insurance in the United States, they have expected payment up front for one or more months. Two is a reasonable number. This would cover the first month and the second month. So they'd have a few weeks to send a bill for the third month and he'd have a few weeks to pay.

It's actually rather common in my experience to be asked to pay the entire six month cost of the insurance ahead of time (I've traditionally contracted for six months of insurance at a time). They charge extra for partial payment with billing. For various reasons, I've always bought insurance from the same company, so this six month term might be company specific. However, my insurance card comes with an expiration date, which seems more generally applicable.

There are various times when it is required to show an insurance card. If the insurance is actually lapsed (due to lack of payment) but the card has a future date, this can cause problems afterward. For example, at an accident, the police might not write someone up for driving without insurance. Auto insurance is mandatory in many states, including New Jersey.

Anyway, if he wants to pay month-to-month but his insurance card covers a six month period, it would not be strange to require a two month payment up front. For the second six-month period, he will still pay ahead of time, but the payments will be required on the normal monthly schedule. Expect payments to be due before the end of the month so as to allow at least a week for processing. This is normal behavior, not special for him.

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