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Does every state require car insurance?

Here's what you need to know...
  • Every state sets and regulates their own auto insurance laws and requirements
  • Some states have compulsory insurance laws which require every driver to carry insurance
  • In states with mandatory insurance laws, the vehicle owner must carry a minimum amount of liability coverage to pay for third-party injuries and damages
  • Some states have financial responsibility laws that allow vehicle owners multiple ways to prove they can financially pay for third-party damages
  • Failure to comply with state minimum laws can result in serious penalties ranging from citations and fees to vehicle impoundment or jail time

Start comparing car insurance rates now by using our FREE tool above! When you own a car, you take on several different responsibilities. You’re responsible for paying your car payment, you’re responsible for maintaining the car, and you’re responsible for paying for any damages that you cause while you’re operating that vehicle. This is why it’s important to look beyond the sales price at the true cost of ownership whenever you’re buying a car.

While some drivers have the resources to pay for damages out-of-pocket, a majority don’t have the financial capacity to self-insure. This is why most state officials require drivers to purchase auto insurance to cover damages that they could potentially cause in the future. If you’re interested in learning about these requirements, read this guide and find out what you need to know about car insurance regulations.

Why do car insurance requirements vary by state?

Not only do the car insurance rates vary by state, so do the car insurance requirements. It’s quite perplexing to drivers who move from one state to the next to discover they must buy a different level of protection. This is because personal auto insurance requirements are set at a state level rather than a Federal level.

There’s currently no Federal law that mandates that all drivers must buy car insurance, but nearly every state in the nation has taken the steps to enact some form of compulsory auto insurance law. These steps were taken so that at-fault drivers wouldn’t default on paying for damages they created because of negligence behind the wheel.

How can states require you to buy auto insurance?

Many drivers wonder how the state can require you to buy one type of insurance product and not another type. After all, states that require their drivers to carry liability coverage while driving a car don’t require the same resident to buy disability, health or even life insurance.

The primary reason that auto insurance is required is because the insurance requirements often protect the other party and not the person carrying the insurance.

While the policy directly protects third-parties who sustain damages, it indirectly protects the policyholder by paying out for settlements, judgments, and court fees.

What type of insurance is required by the state?

Requirements and limits may vary by state, but the actual types of coverage you must carry in most states are similar. If you live in a state that operates under a fault-based or tort law system, you must carry protection that will pay for the damages that you cause if you’re the party who’s at fault for a collision. Here are the standard coverages you’ll be required to purchase on a basic policy in tort law states:

  • Bodily Injury (BI):

Pays when you cause an accident and another party is injured or killed. This coverage pays on a per person and a per accident basis, up to the limits you’re carrying.

  • Property Damage (PD):

Pays when you cause an accident and you damage someone else’s property. State law dictates the limit that you must carry per accident, but you can elect to carry higher limits.

Requirements in No-fault States

Not all states operate under a fault-based system. Instead of operating under a system that uses fault to determine which insurer will pay for the damages, there are 12 states that have a no-fault system. In no-fault states, vehicle owners must carry no-fault insurance that pays for their own damages. This is believed to reduce the number of claims that go to civil courts and clog up the judicial system since people can only sue for pain and suffering if specific conditions are met. Here’s how the coverage requirements look:

  • Personal Injury Protection (PIP):

PIP will pay for your medical expenses, medical transport, lost wages, rehabilitation and more depending on the state requirements. Some states have a limit and others have an open limit where all reasonable expenses are covered.

  • Property Damage (PD):

Property Damage Liability is still required in no-fault states because fault will be used to determine who is responsible to pay for damages to real property. Some states will also require Bodily Injury to pay for losses with out-of-state drivers or while the insured crosses state lines.

Other Requirements to Look For

While liability is the most common requirement, more and more states are requiring drivers to carry protection for themselves against uninsured motorists. Uninsured Motorist Protection helps the injured policy pay for their medical expenses when someone hits them and they don’t have any liability insurance or their limits are too low. Some states only require carriers to offer the coverage and give drivers the option to reject it if they desire.

What’s the difference between compulsory laws and financial responsibility laws?

It might seem straightforward, but states with tort laws have very different types of laws. Some states have made insurance a mandatory requirement for each and every person who has a registered vehicle. These are called compulsory insurance laws. Other states, however, have financial responsibility laws, which give the registered owner different options to prove they can pay for damages. While every state is different, some options include:

  • Surety bond
  • Cash deposit with state treasurer
  • Real estate bond
  • Liability insurance

Penalties for Failing to Comply with Insurance Laws

If you’re tempted to skip the expense in a state with mandatory insurance laws, know that coverage can be verified electronically. If you’re caught without insurance you face the following penalties:

  • Suspension of license or registration
  • Fines and fees
  • Misdemeanor citations
  • Vehicle storage fees and impound
  • SR-22 requirement
  • Up to 12 months in jail
  • Insurance premium surcharges

Driving without insurance comes with several risks. Not only could you get in legal trouble, you could also get in financial trouble if you have a loss. If you don’t have insurance, it’s time for you to get premium quotes. Use an online tool and you can compare premiums for basic coverage or for more comprehensive policies that provide more broad protection. Compare car insurance rates now by entering your zip code in our FREE tool below!

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