A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 19, 2021

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With the invention of the first automobile became a need for the government to address just what drivers were required to possess to legally drive a vehicle that they own. This is when the auto insurance product was created and states began to set official requirements. Contrary to popular belief, the Federal Government is not directly responsible for mandating car insurance requirements or financial responsibility laws. Instead, the laws are set and then reviewed at a state level.

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The first two states enacted their own unique compulsory insurance laws in 1925 once they recognized the need to require drivers to cover damages that they cause. Ever since then, all states have some form of mandatory financial responsibility law in place that will ensure that at-fault drivers have help to cover the cost of damages so that the victims are able to recover. Many people in the United States wonder why car insurance is mandatory but many other forms of insurance are not. To truly understand why car insurance is almost always a compulsory requirement that is written into the state’s vehicle code, you need to learn what is and what is not required. Read on, so that you can learn why car insurance is such a big priority to state governments.

Why is auto insurance a legal requirement?

If you are curious as to why you are required to carry car insurance but you do not have to carry products like life insurance or disability insurance by law, it is because of who the requirements protect. In a majority of states, registered vehicle owners must only carry coverage that actually directly protects other parties and not the owner itself.

All other products that you can voluntarily purchase on your own terms provide you or your family with protection and not an unrelated third-party who could suffer damages because of your actions.

While 37 states have strict laws that require only third-party cover and some forms of protection against uninsured motorists, there are 12 states that operate under a unique no-fault system. In these states, there are actually requirements in place that make it so that vehicle owners must carry insurance that pays for their own medical bills regardless of who is at fault in a loss. While this is a benefit that is required and technically protects you, the only reason that you must buy insurance that will pay for your own claims is because of the way the system works. Here is a breakdown just so that you are familiar with the differences:

  • Tort Auto Insurance Systems

A tort system is a fault-based system that will use fault determination to determine which company will pay for the damages and which coverages will be used for the payout. When a driver has been found to have caused a loss, that driver’s insurer will use liability insurance to pay for the victim’s accident-related medical expenses and a reasonable amount to repair the property damaged. The victim is also legally allowed to open lawsuits for various damages, including a claim for pain and suffering.

  • No-fault Auto Insurance Systems

In an effort to reduce the number of claims that wind up in court, some states have decided to create their own version of a no-fault system. In a true no-fault system, fault would never be used in any scenario to determine who pays for what. Unfortunately, it is not possible to have a true no-fault system when only a small fraction of states operate this way.

Most states have a partial no-fault system where every driver carries Personal Injury Protection that pays for their own medical-related costs. In these states, the parties involved may be limited as to when they can sue and may be required to purchase the right to sue on their policy for an added premium. While Personal Injury Protection, also referred to as PIP, is a requirement, you must also have liability to pay for property damage. In some instances states will also require you to have Bodily Injury Liability for protection across state lines or for when you collide with an out-of-state driver.

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What type of coverage must you carry?

The coverage requirements depend entirely upon the type of system your state uses and if there are serious accident rate issues that state officials are trying to address. Here are requirements that are a must when you live in a state with a fault-based tort system or a non-fault system:

  • Bodily Injury (BI): A form of third-party liability coverage that will pay for both short-term and long-term, accident-related medical expenses. You will carry both a per person and a per accident limit and the state will mandate minimums in each area. If you are taken to court for pain and suffering, the judgement will be paid out with the BI limit.
  • Property Damage (PD): The second form of third-party liability pays for damages that BI does not. Instead of paying for medical expenses, PD will pay for the cost of repairs to things like cars, benches, lampposts, street signs, homes and other real property. The limit is per accident.
  • Uninsured Motorist (UM): This coverage does protect you and your family, but only when a driver without any liability coverage hits you. While insurance is mandatory, some do not comply with the law. If you live in a state with a high incidence of uninsured drivers, this could be a mandatory coverage.
  • Personal Injury Protection (PIP): Required in states with no-fault systems. Will pay up to a limit for reasonable medical costs, rehabilitation costs and lost income.

What is not required by law?

Any other type of protection that is designed to protect you is optional. Comprehensive and collision, which pay to repair your car, can be added to the policy by choice. You may also add other types of optional cover such as:

  • Medical Payments
  • Rental Car Cover
  • Towing
  • Death & Dismemberment

If you are driving without insurance, even if you are not caught by law enforcement, you could face serious penalties. Be sure to always maintain coverage when your car is registered to avoid this. If you would like to find quality coverage or switch carriers, you can price shop in a matter of minutes by using an online rating tool for multiple quotes. Start comparing car insurance rates now by using our FREE tool below! Enter your personal and vehicle information, and you will be directed to live quotes to see how much mandatory coverage costs.