Why Is Car Insurance Mandatory?

Last Updated on October 17, 2020

Have you ever sat down and wondered, “why is car insurance mandatory?” The answer is a bit more complicated than you might expect. The truth is that there is no federal law that says all drivers are required to have auto insurance when driving. Instead, there are laws on the state level, and these laws can vary quite a bit depending on where you are. However, in 49 states, car insurance is required to drive on public roads.

Continue reading to learn the history of mandatory car insurance, where car insurance is required, why car insurance is required, and how much car insurance is required, as we tackle the topic of mandatory auto insurance coverage below.

A Short History of the Debate Over Mandatory Insurance

is car insurance mandatoryThere has been debate about whether car insurance should be mandatory for more than 100 years – back to when the first automobile was created. It was evident that cars would get into crashes that might cause damages and that not all drivers would have the money to handle those damages. This caused concerns about how the victims would be compensated.

Connecticut and Massachusetts were two of the first states to require auto insurance back in 1925. This was done to offer a solution to help cover costs when at-fault drivers had no money to pay for the damage. Since that time, nearly all states in the U.S. have created their own laws about car insurance liability. Other forms of insurance have also been introduced over the years.

The mandating of auto insurance has not come without debate and controversy, however. In 1987, the state of California was sued for requiring its drivers to carry auto insurance coverage while driving. The plaintiffs alleged that it put poor residents at a disadvantage because California could not guarantee affordable auto insurance would be available. The Supreme Court of California eventually upheld the law, keeping the auto insurance mandate in place.

Nowadays, liability insurance is mandatory in nearly every state of the country. The reason for this is because it protects victims of car accidents who suffer injuries or damages to their property. The idea is that innocent people would suffer financially from their losses when in a vehicle accident. With insurance, the damages are paid to ensure a victim isn’t left in a bad spot after a crash.

Where Car Insurance is Required and Where it Isn’t

Car insurance can be confusing to shop for, can be expensive depending on the provider, and is mandatory in nearly the entire United States. Since the state sets the laws on car insurance, there are differences in requirements. For instance, New Hampshire is the only state where auto insurance isn’t mandatory as long as a driver can show proof that they will take financial responsibility. In Virginia, you can opt out of buying car insurance, but you’ll have to pay an uninsured motorist fee to the Virginia DMV instead. All other states require it, but their exact laws can differ.

Why Auto Insurance is Required in Most States

Auto insurance is typically required because a driver is responsible for any damage that they cause. With the average American household having less than $9,000 in savings, many people wouldn’t be able to afford having a car accident if it weren’t for insurance. This is especially true considering the average bodily injury claim costs $15,443. Without insurance, many people would go bankrupt after an accident.

Auto insurance not only can cover damage to your own car, but it can also cover damage that you cause. While there are collision and comprehensive coverage to cover your own vehicle and property, most states only require liability insurance for property damage and bodily injury for the drivers in the other vehicle.

This kind of insurance will have a specific amount required by the state you live in and ensures relief is provided to victims of any damages if you cause a crash. Since a car is capable of generating both material and physical harm, your insurance should cover what the cost of those damages might add up to.

In order to register your vehicle and take it out on the road, it’s required to maintain your state’s minimum level of liability insurance or insurance that surpasses that amount. If you have a financed or leased car, it may be required to go beyond the minimum amount by having collision and comprehensive coverage with gap insurance and low deductibles. The dealership or bank may require this to protect their own interests.

How Much Insurance is Mandatory

It’s hard to give a definitive answer to this since the amount varies by state. For example, in California, a driver needs to have $30,000 in bodily injury liability for each accident, $15,000 bodily injury liability for each person, and $5,000 property damage liability for each accident. On the other hand, Maine requires more massive amounts of all those types of insurance, as well as medical payment coverage and uninsured or underinsured motorist coverage.

Since every state has a different requirement, you’ll want to check for the specifics of your location. Most of the time, no-fault states will require you to have more coverage than at-fault states. Every person in a no-fault state will need to fill bodily injury claims after an accident, which can increase the cost of insurance payments.

There are currently 12 no-fault states in America:

  • Florida
  • Hawaii
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey
  • New York
  • North Dakota
  • Pennsylvania
  • Utah

These states also require personal injury protection coverage in addition to bodily injury and property damage coverage. Personal injury protection is used to cover the amount of any medical bills for you and your passengers if you are in a car accident. However, again, the amount of coverage required is based on what state you are in.

The Importance of Auto Insurance on a Personal Basis

If you get pulled over without proof of auto insurance, you will face fines and other legal penalties. If you cause an accident without insurance, you will not only face these fines and legal repercussions, but you will have to pay for the repairs out-of-pocket.

There are actually many benefits to having auto insurance, beyond avoiding penalties, fines, and a few headaches. For example, even if you get into a collision with somebody who doesn’t have insurance, if you have collision coverage, your repairs will be covered. If your car were to be damaged due to a storm or tornado, the repairs will be paid for if you have comprehensive coverage. The same applies if your vehicle is damaged in something other than a collision or if someone steals the car.

Medical payment coverage is another insurance option that can offer benefits to you and your passengers. This insurance helps you pay the bills from medical services you require when you’re injured in an accident. It often also offers coverage for passenger’s who are injured in an accident and seek medical treatment. Some of the things that may be covered include doctor bills, hospital visits, and surgery.

Mandatory Car Insurance to Keep Everyone Safe

Since others can be harmed when you drive a vehicle, liability insurance is available (and typically mandatory) to ensure damages can be paid after an accident. The amount of insurance that you need will depend on various things, including the status of ownership of your vehicle and where you are located. Those who are leasing a car or making payments to own it will be required to carry higher coverage than those who own their vehicles outright.

Insurance protects you, your passengers, and everyone else you share a road with. No matter what state you live in, having an adequate amount to handle accidents is a must. If you’re looking for insurance for your vehicle, look at your options, and be safe before driving!

James Shaffer
James Shaffer James Shaffer is a writer for InsurancePanda.com and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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