Why Is Car Insurance Mandatory?
Last Updated on November 18, 2020
Most states require drivers to carry car insurance. In most states, car insurance is mandatory: you legally need car insurance to drive.
But why is car insurance mandatory? Why do we need to carry car insurance to drive? Is it legal to enforce car insurance requirements onto citizens?
Car insurance is mandatory because vehicles can cause a lot of damage. The at-fault driver is required to cover this damage. If you injure someone or damage someone’s property with your vehicle, then you need to cover that damage. We can’t trust everyone to pay, which is why we need car insurance.
Today, we’re explaining everything you need to know about car insurance requirements and why car insurance is mandatory.
Car Insurance is Mandatory Because of Liability
100 years ago when cars were becoming popular, society realized a big problem: cars could cause a lot of damage.
Cars could damage property. They could cause deaths and serious injuries. They led to lost wages, hospital bills, automobile repair costs, and other expenses.
While some drivers were able to cover this damage, other drivers were not. A rich driver might afford to cover someone else’s injuries after an accident, while a poor driver would not be able to pay anything, leaving society to cover the costs.
Society is built on the idea of liability. When you cause damage to someone, you are liable for that damage. You caused that damage, so you need to pay for it.
With cars, people were still liable for any damage they caused – but the costs of a vehicle accident could be too high for some people to cover on their own. They would just declare bankruptcy instead of covering the full costs of the accident.
In many cases, the cost of the accident was so high that the driver could not afford to cover the damage. The driver might not have enough money cover the medical bills and vehicle repair costs after an accident. However, these costs still need to be paid, and society ultimately absorbs the cost.
As vehicles became more popular, states realized they needed some type of insurance system to offset these costs.
Today, all states require drivers to have some type of proof of financial responsibility – like car insurance – to legally drive.
Car Insurance is Not Required in All States
Every state in America requires drivers to pay for any damage they cause after an at-fault accident.
However, that doesn’t necessarily mean you need to have car insurance. Some states require drivers to provide proof of financial responsibility in other forms – like through surety bonds or DMV deposits.
Two states do not technically require car insurance whatsoever, including New Hampshire and Virginia. However, Virginia still requires drivers to prove financial responsibility to legally drive – say, by depositing money with the DMV or an equivalent agency. New Hampshire does not require proof of financial responsibility, although drivers are still liable for any damage they cause.
Similarly, drivers in California can buy a surety bond instead of car insurance. You can buy a $35,000 bond with the DMV or another agency, for example. This money is locked away in the event of an accident. It’s not technically car insurance – but it proves you can cover the liability of your accident.
Minimum Insurance Limits Vary Between States
Minimum insurance liability limits vary widely between states. Some states have high minimum limits and high insurance costs, while other states have low minimum limits, giving drivers greater flexibility over how much insurance they want to buy.
Generally, states require drivers to have two main types of car insurance, including bodily injury liability coverage and property damage liability coverage:
- Bodily Injury Liability Coverage: This covers medical bills, lost wages, and other expenses incurred by drivers, passengers, pedestrians, and anyone else injured from a vehicle accident.
- Property Damage Liability Coverage: This covers the cost of repairing or replacing property after an accident, like any car repair costs or similar expenses after an accident.
Some states require drivers to have additional types of coverage. Some states require personal injury protection (PIP), for example, or uninsured driver insurance.
In New York, as you may already know, auto insurance is required by law. The current NYS auto insurance requirements are as followed:
| Coverage Type | Minimum Amount Required |
|---|---|
| Bodily Injury Liability (BIL) | $25,000 per person in a single accident $50,000 for all persons in a single accident |
| Bodily Injury Liability (BIL) Death Benefits | $50,000 per person killed in a single accident $100,000 for all persons killed in a single accident |
| Property Damage Liability (PDL) | $10,000 for a single accident |
| Personal Injury Protection (PIP) / No-Fault Insurance | $50,000 for a single accident |
| Uninsured Motorist Bodily Injury (UMBI) | $25,000 per person $50,000 for a single accident |
| Collision | Not Required |
| Comprehensive | Not Required |
Mandatory Car Insurance Limits: How Much Do I Need?
Each state sets its own limit for minimum liability coverage.
Some states require $50,000 of bodily injury liability coverage and $25,000 of property damage liability coverage. Other states require a fraction of that amount.
Drivers can choose to meet or exceed each state’s minimum limit. You might decide you want added peace of mind, for example, and buy added car insurance coverage.
Alternatively, drivers who want to save as much money as possible and are okay with added risk may match the minimum liability limits. You’re paying the lowest possible amount for car insurance and have minimum coverage, but you’re legally able to drive.
What Would Happen If We Didn’t Have Car Insurance?
Car insurance is mandatory because the alternative is much worse.
If we did not require drivers to have car insurance, then we would have the same number of accidents – but the consequences would be worse.
Without car insurance requirements, drivers would still need to cover damage in the event of an accident, but many drivers would be unable to pay.
Let’s say you collide with a driver who does not have insurance. The other driver is 100% at-fault for the accident. You have $50,000 in medical bills and your $15,000 car is a total loss. Legally, the other driver is liable for paying $65,000 to make you ‘whole’ again after the accident. Unfortunately, the other driver only has $2,000. The other driver pays you $2,000 and declares bankruptcy, and you must pay the remaining $63,000 out of pocket.
Now let’s say the other driver has insurance. You collide with the other driver. Your state requires a minimum of $50,000 of bodily injury liability coverage and $25,000 of property damage liability coverage. The car insurance company covers all your damage up to the limits of the policy. Even though the other driver would be unable to cover this damage on his own, his car insurance company covers damage to make you whole again.
This is an extreme example, but it explains why we have car insurance.
Even with car insurance requirements, many states have high numbers of uninsured drivers. In some states, nearly 25% of drivers do not have insurance.
Final Word on Mandatory Auto Insurance
Driving is a privilege – not a right. To drive in the United States, you need to prove you are financially responsible for any damage you cause to other people or property.
Most drivers buy car insurance as proof of financial responsibility.
Car insurance covers damage up to the limits of your policy. Some drivers match the minimum car insurance requirements for their state, while other drivers exceed the minimum requirements.
In some states, drivers are not technically required to buy car insurance, although they still need to prove financial responsibility in other ways.
Drivers in New Hampshire can avoid car insurance altogether, for example, although they’re still liable for any damage they cause. Drivers in California, meanwhile, can buy a $35,000 surety bond with the DMV instead of car insurance.
Without car insurance, these costs would be passed onto society. With car insurance, we can create a safer driving situation for everyone on the road.
