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The Connection: Car Financial Responsibility Laws And Car Insurance

Financial responsibility laws refers to a set of rules and regulations that exist to make sure that someone who is deemed responsible for an auto accident will be able to compensate the other driver for any damage or injury they may cause.

One confusing factor regarding this set of laws is that while almost every state has some form of financial responsibility law, the existence of such a law doesn’t necessarily mean all drivers must purchase an auto policy as a condition of car registration. Conversely, most states have financial responsibility laws, even if they require all drivers to purchase car insurance as a condition to drive and register a vehicle in their state. Every state requires drivers to have one of two things. The first option is to have the minimum amount of liability insurance to cover the cost of property damage and any fees related to personal injury or death should a driver be found responsible for an accident. The other option is to submit some type of proof to state officials that they would be able to compensate another motorist in the event of an accident involving property damage or injury.

If a motorist opts to comply with financial responsibility laws by purchasing car insurance coverage, states generally require a minimum level of coverage. The coverage level is often specified in both “per person” coverage levels and “per incident” coverage levels, the latter of which refers to a maximum payout level for a single covered incident. States that don’t mandate liability insurance coverage, which include Iowa and New Hampshire, generally require motorists without a valid car insurance to provide a certificate of self-insurance, post a surety bond or make a specified prepayment of funds in lieu of insurance. The exact of amount of the prepayment or other self-secured coverage required varies by state, but is usually either a surety bond of between $30,000 and $60,000 or a certificate of self insurance. In the latter instance, the insurance must be backed by real estate or other property valued at a certain level. The Insurance Information Institute, a leading industry trade group, maintains a concise list of coverage requirements for every state, which may be found at

Most states have laws that provide for the suspension of your driver’s license and/or vehicle registration if you’re found to have insufficient coverage. Some states also require drivers to carry additional coverage if they’re ever convicted of certain offenses, such as driving while intoxicated. Drivers who are found guilty in these situations must pay reinstatement fees and show certified proof of liability insurance to get their driving privileges restored.

Familiarize yourself with the requirements in your state to ensure you are properly covered.

Car Insurance by State

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