One of the most surprising things about car insurance is that it isn’t mandatory in some states, e.g. Alabama, Iowa, Mississippi, New Hampshire, Pennsylvania, etc. These states have ‘financial responsibility’ laws, requiring you to post a bond, cash deposit or approved self-insurance with the state to cover damages if you’re involved in an accident.
Motorists in states where car insurance is compulsory must provide proof of insurance at the time of vehicle registration and may be required to carry it in their vehicles at all times. Buying car insurance is more complicated in the US than in most other countries and may include the following types of cover:
Liability insurance includes bodily injury liability, i.e. injuries you cause to someone else, and property damage liability, which is damage caused to someone else’s property, including other vehicles. In most states, liability motor insurance is compulsory, although it doesn’t necessarily include unlimited liability. Most states have laws setting minimum levels for liability insurance, but these are usually woefully inadequate. ‘Responsibility’ limits are set by each state for death or injury to one person, death or injury to more than one person, and property damage in excess of a certain amount.
If your liability after an accident exceeds your amount of insurance and you have personal assets, these are used to pay damages, if necessary, until you’re bankrupt.
Lawsuits often run into millions of dollars and litigation lawyers are among the richest legal vultures. Liability limits can usually be raised significantly for a modest extra premium. To protect yourself against astronomical damages, you can also take out a personal liability umbrella policy which increases your liability limits to a level that covers almost any event.
Around 25 states and the District of Columbia have some form of Personal Injury Protection (PIP) or no-fault insurance law. This means that if you’re involved in an accident, you can claim (up to certain limits) from your own insurance company for personal injury sustained in an accident, rather than go to court and try to prove that the other party was at fault. In states without a no-fault law, the victim files a claim against the other driver, irrespective of whether or not the driver is insured, and is paid only if it can be proved that the other driver was responsible for the accident. If you weren’t to blame and can prove it through witnesses or a police prosecution of the other driver, make sure your insurance company is informed, or you may lose your good driver (no-claims) discount.
Where applicable, PIP insurance is usually compulsory and covers bodily injury only and not vehicle damage. Those insured under PIP insurance receive prompt payment from their own insurance company, but their right to sue for general damages is usually restricted. Motorists insured in states with liability laws should ensure that their insurance covers them when travelling in states with no-fault laws. Most insurance companies automatically extend their policies to cover states with no-fault laws.
PIP cover may duplicate insurance provided by health or disability insurance policies. PIP insurance provides benefits for medical and hospital costs (the level depends on your policy), plus lost wages or income continuation, replacement/essential services, survivors’ loss/death benefit, and funeral expenses. Lost wages and replacement services are payable up to a maximum amount for maximum periods.
PIP Medical Expenses Insurance
It’s possible to buy Personal Injury Protection cover for medical expenses only. PIP medical expenses pays the medical expenses of anyone injured when travelling in your car, irrespective of fault. Depending on your policy, it may also pay your medical bills when you or your family members are travelling in someone else’s car, or if you’re hit by a car while walking. Unlike other health policies, the medical payments part of a vehicle policy pays for all medical expenses incurred, without excesses (deductibles) or co-payments (called ‘first dollar coverage’).
If you have comprehensive health insurance, you may not require this protection, although it also covers anyone travelling in your car. In some states, you can choose your PIP health insurance provider, who can be someone other than your car insurance company, e.g. your employer’s health insurance company.
Catastrophic Medical Expenses Insurance
Some insurance companies offer catastrophic medical expenses cover, protecting you against abnormally high medical bills. Whether or not you have this type of insurance depends on the level of your health insurance. If it has limitations, you’re advised to have catastrophic medical expenses cover.
Uninsured Motorist Insurance
To protect yourself against accidents with uninsured motorists and hit-and-run accidents (whether driving or walking), you should have uninsured motorist insurance. Uninsured motorist laws have been enacted in many states, requiring insurance companies to include in their basic policy cover against damage caused by motorists who aren’t insured. Uninsured motorist cover is usually equal to the minimum financial responsibility limits set by a state and is compulsory in some states. If you have collision insurance, you usually don’t need uninsured motorist insurance.
In many states, the penalties for driving without insurance are derisory, and there may be no penalty at all unless you have an accident. However, when the paltry financial penalties are compared with the often high insurance premiums, it’s hardly surprising that there are so many uninsured motorists. If you have an accident involving another vehicle, the chances of the driver being uninsured are extremely high in some cities, so it’s important to calculate the financial consequences of an accident involving an uninsured motorist.
Under-insured Motorist Insurance
This is similar to uninsured motorist cover and covers you when another motorist is responsible, but has insufficient insurance to cover the injuries or damage to property (although, if he has sufficient assets, you can still sue him).
Collision cover is for damage caused by you to your own vehicle, irrespective of who was responsible for the damage. Collision cover usually has an excess (deductible); the higher the excess, the lower your premium. Whether it’s necessary (or wise) to have collision cover usually depends on the value of your car. Collision and comprehensive cover are usually required by a car loan or a leasing company. With collision insurance, you usually don’t need uninsured motorist insurance.
Comprehensive cover is for loss of the vehicle resulting from fire, theft, vandalism, collisions with animals, storms, floods, riots, explosions, earthquakes, falling objects, plus accidental glass breakage, e.g. from a stone thrown up by another vehicle. It doesn’t cover you against accidents involving other vehicles or objects, for which you require collision cover. Comprehensive cover usually has a lower excess than collision cover.
Miscellaneous Extra Insurance
This insures you against a wide range of costs, including a rental car when your car is being repaired, and towing and labour in the event of an accident or breakdown (also provided by automobile clubs). If you frequently use rented cars, you may be interested in a policy that includes collision damage waiver (CDW) for rented cars, which may also be provided free by a credit card.
Insurance premiums are high, particularly for men under 27 and those who live in inner cities, where driving conditions are more hazardous and where car theft is endemic. Many factors influence the cost of car insurance, including:
The make and type of car (and how expensive it is to repair);
The type of insurance cover required;
The age and value of the car;
Your age, sex (some companies offer a discount to women drivers) and occupation;
What you use your car for (e.g. business or pleasure);
Your driving experience and driving record;
Your accident record and no-claims bonus (good-driver discount);
Who will drive the car;
Your health (you may be required to pay an excess if you suffer from epilepsy or diabetes);
Where you live and whether your car is stored in a locked garage overnight;
The number of miles you do each year;
Any extras required, such as a rented car when your car’s being repaired after an accident.
Shop around a number of insurance companies, as rates can vary by up to 400 per cent. Among the largest US car insurers are State Farm, Allstate, Farmers and Nationwide. State Farm is a mutual insurance company and customers sometimes receive a refund from excess profits. You should ask your family, friends and colleagues for their advice regarding car insurance, although you should also make your own comparisons.
Some ways to reduce your insurance are to:
Make comparisons — shop ’til you drop!
Insure your car with your household insurance company, which may yield a discount of 5 to 10 per cent.
Take advantage of insurer’s discounts, usually 5 or 10 per cent of the premium. Most insurance companies offer discounts for cars fitted with air bags, automatic seat belts, anti-theft devices or anti-lock brakes. Many also provide low-mileage discounts and discounts for more than one car, no claims (good-driver discounts, e.g. if you make no insurance claims in three years), drivers aged over 50 or 55, driver training courses (e.g. defensive-driving), and even good student grades (are diligent students safer drivers?). Drivers aged over 65 can complete a ‘mature driving course’ in some states, guaranteeing them a three-year discount on their insurance premiums.
Don’t get uninsured motorist cover unless required by state law. If you’re hit or injured by an uninsured motorist, repair and medical bills are covered by your collision insurance (provided you have it!), PIP cover and other medical insurance.
Drop your reimbursement for a rented car. If you’re a two-car (or more) family, you may be able to do without a rented car while one car is being serviced or repaired. Insurance companies have limits on what they pay for a rented car.
If you have an employee hospitalisation plan, you could drop your car insurance medical payments, which duplicates medical insurance you already have.
Drop the emergency towing service, which you probably don’t need unless you have an old car susceptible to breakdowns. Insurers often limit what they provide for a tow, which is too little anyway. Join the AAA or another automobile club providing an emergency towing service.
If your car isn’t a status symbol, consider buying a ‘low profile’ car with a low insurance rating and, if you’re considering a house move, choose a low insurance area.
One thing not to do in order to save money on car insurance is reduce your liability limits!
There’s no correlation between the premium you pay and the quality of service you receive, so paying a high premium doesn’t guarantee the best service. Some 25 states publish information comparing the insurance rates of different companies. For information contact your state insurance regulator. Premiums can be increased at renewal time, which is likely if you’ve made any claims in that period. Many insurance companies allow premiums to be paid in instalments, e.g. quarterly or monthly.
When completing your insurance proposal form, make sure that you state any previous accidents or driving offences; otherwise your insurer can refuse to pay out in the event of a claim. Drivers who have been banned for drunk or dangerous driving must usually pay at least double the standard premium for three years (even penalty points on your licence increases your premium). Your insurance company may cancel your policy if you’re found guilty of drunk driving, speeding or recklessness resulting in injury or death. For general information on car insurance contact the Insurance Information Institute, 110 William Street, Floor 24, New
Vehicle insurance, in the United States and elsewhere, is designed to cover risk of financial liability or the loss of a motor vehicle the owner may face if their vehicle is involved in a collision resulting in property or physical damages. Most states require a motor vehicle owner to carry some minimum level of liability insurance. States that do not require the vehicle owner to carry car insurance include Virginia, where an uninsured motor vehicle fee may be paid to the state; New Hampshire, and Mississippi which offers vehicle owners the option to post cash bonds (see below). The privileges and immunities clause of Article IV of the U.S. Constitution protects the rights of citizens in each respective state when traveling to another. A motor vehicle owner typically pays insurers a monthly fee, often called an insurance premium. The insurance premium a motor vehicle owner pays is usually determined by a variety of factors including the type of covered vehicle, the age and gender of any covered drivers, their driving history, and the location where the vehicle is primarily driven and stored. Credit scores are also taken into consideration. Most insurance companies offer premium discounts based on these factors.
Insurance companies provide a motor vehicle owner with an insurance card for the particular coverage term which is to be kept in the vehicle in the event of a traffic collision as proof of insurance. Recently, states have started passing laws that electronic versions of proof of insurance can now be accepted by the authorities.
Consumers may be protected by different levels of coverage depending on which insurance policy they purchase. Coverage is sometimes seen as 20/40/15 or 100/300/100. The first two numbers seen are for medical coverage. In the 100/300 example, the policy will pay $100,000 per person up to $300,000 total for all people. The last number covers property damage. This property damage can cover the other person’s vehicle or anything that you hit and damage as a result of the accident. In some states you must purchase Personal Injury Protection which covers medical bills, time lost at work, and many other things. You can also purchase insurance if the other driver does not have insurance or is under insured. Most if not all states require drivers to carry mandatory liability insurance coverage to ensure that their drivers can cover the cost of damage to other people or property in the event of an accident. Some states, such as Wisconsin, have more flexible «proof of financial responsibility» requirements.
In the United States in 2015, the largest vehicle insurance providers, in terms of market share, were State Farm Insurance, Liberty Mutual Insurance, Allstate, Berkshire Hathaway (which operates as Geico), and The Travelers Companies. Insurance is secured either by working with an independent insurance agent or with an insurance broker who is authorized to sell insurance policies. Some can represent from several agencies, like Guy Carpenter & Company or a growing number of online brokers who provide policy purchases through sites like Quote.com and Walmart.
Further information: Liability insurance
Liability coverage, sometimes known as Casualty insurance, is offered for bodily injury (BI) or property damage (PD) for which the insured driver is deemed responsible. The amount of coverage provided (a fixed dollar amount) will vary from jurisdiction to jurisdiction. Whatever the minimum, the insured can usually increase the coverage (prior to a loss) for an additional charge.
An example of property damage is where an insured driver (or 1st party) drives into a telephone pole and damages the pole; liability coverage pays for the damage to the pole. In this example, the drivers insured may also become liable for other expenses related to damaging the telephone pole, such as loss of service claims (by the telephone company), depending on the jurisdiction. An example of bodily injury is where an insured driver causes bodily harm to a third party and the insured driver is deemed responsible for the injuries. However, in some jurisdictions, the third party would first exhaust coverage for accident benefits through their own insurer (assuming they have one) and/or would have to meet a legal definition of severe impairment to have the right to claim (or sue) under the insured driver’s (or first party’s) policy. If the third party sues the insured driver, liability coverage also covers court costs and damages that the insured driver may be deemed responsible for.
In some states, such as New Jersey, it is illegal to operate (or knowingly allow another to operate) a motor vehicle that does not have liability insurance coverage. If an accident occurs in a state that requires liability coverage, both parties are usually required to bring and/or submit copies of insurance cards to court as proof of liability coverage.
In some jurisdictions: Liability coverage is available either as a combined single limit policy, or as a split limit policy:
Combined single limit
A combined single limit combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, an insured driver with a combined single liability limit strikes another vehicle and injures the driver and the passenger. Payments for the damages to the other driver’s car, as well as payments for injury claims for the driver and passenger, would be paid out under this same coverage.
A split limit liability coverage policy splits the coverages into property damage coverage and bodily injury coverage. In the example given above, payments for the other driver’s vehicle would be paid out under property damage coverage, and payments for the injuries would be paid out under bodily injury coverage.
Bodily injury liability coverage is also usually split into a maximum payment per person and a maximum payment per accident.
The limits are often expressed separated by slashes in the following form: «bodily injury per person»/»bodily injury per accident»/»property damage». For example, California requires this minimum coverage:
$15,000 for injury/death to one person
$30,000 for injury/death to more than one person
$5,000 for damage to property
This would be expressed as «$15,000/$30,000/$5,000».
Another example, in the state of Oklahoma, drivers must carry at least state minimum liability limits of $25,000/$50,000/$25,000. If an insured driver hits a car full of people and is found by the insurance company to be liable, the insurance company will pay $25,000 of one person’s medical bills but will not exceed $50,000 for other people injured in the accident. The insurance company will not pay more than $25,000 for property damage in repairs to the vehicle that the insured one hit.
In the state of Indiana, the minimum liability limits are $25,000/$50,000/$10,000, so there is a greater property damage exposure for only carrying the minimum limits.
Generally, liability coverage purchased through a private insurer extends to rental cars. Comprehensive policies («full coverage») usually also apply to the rental vehicle, although this should be verified beforehand. Full coverage premiums are based on, among other factors, the value of the insured’s vehicle. This coverage, however, cannot apply to rental cars because the insurance company does not want to assume responsibility for a claim greater than the value of the insured’s vehicle, assuming that a rental car may be worth more than the insured’s vehicle.
Most rental car companies offer insurance to cover damage to the rental vehicle. These policies may be unnecessary for many customers as credit card companies, such as Visa and MasterCard, now provide supplemental collision damage coverage to rental cars if the rental transaction is processed using one of their cards. These benefits are restrictive in terms of the types of vehicles covered.
Maine requires car insurance to rent a car.
Full coverage is the term commonly used to refer to the combination of comprehensive and collision coverages (liability is generally also implied.) The term full coverage is actually a misnomer because, even within traditional full coverage insurance, there are many different types of coverage, and many optional amounts of each. «Full coverage» is a layman’s misnomer that often results in drivers and vehicle owners being woefully underinsured. Most responsible insurance agents or brokers do not use this term when working with their clients.
One common misconception in the United States is that vehicles that are financed on credit through a bank or credit union are required to have «full» coverage in order for the financial institution to cover their losses in case of an accident. Insurance requirements vary between financial institutions and each state. Minimum deductibles and liability limits (required by some leasing companies) would be outlined in the loan contract. Failure to carry the required coverages may lead to the lienholder purchasing insurance and adding the cost to the monthly payments or repossession of the vehicle. Vehicles purchased with cash or paid off by the owner are generally required to only carry liability. In some cases, vehicles financed through a «buy-here-pay-here» car dealership—in which the consumer (generally those with poor credit) finances a car and pays the dealer directly without a bank—may require comprehensive and collision depending on the amount owed for the vehicle.
Collision coverage provides coverage for vehicles involved in collisions. Collision coverage is subject to a deductible. This coverage is designed to provide payments to repair the damaged vehicle, or payment of the cash value of the vehicle if it is not repairable or totaled. Collision coverage is optional, however if you plan on financing a car or taking a car loan, the lender will usually insist you carry collision for the finance term or until the car is paid off. Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) is the term used by rental car companies for collision coverage.
Comprehensive, also known as other than collision coverage, provides coverage, subject to a deductible, for cars damaged by incidents that are not considered collisions. For example, fire, theft (or attempted theft), vandalism, weather, or impacts with animals are types of comprehensive losses.
Additionally, the majority of insurance companies list «Acts of God» as an aspect of comprehensive coverage. By definition, it includes any events or occurrences that are beyond human control. For example, a tornado, flood, hurricane, or hail storm would fall under this category.
Uninsured/underinsured motorist coverage
Uninsured/Underinsured coverage, also known as UM/UIM, provides coverage if an at-fault party either does not have insurance, or does not have enough insurance. In effect, the insurance company pays the insured medical bills, then would subrogate from the at fault party. This coverage is often overlooked and very important. In Colorado, for example, it was estimated in 2009 that 15% of drivers were uninsured. Usually the limits match the liability limits. Some insurance companies do offer UM/UIM in an umbrella policy.
Some states maintain unsatisfied judgment funds to provide compensation to those who cannot collect damages from uninsured driver. Typically, the payout is not more than the minimum liability limits and the negligent driver remains responsible for reimbursing the state’s fund.
In the United States, the definition of an uninsured/underinsured motorist, and corresponding coverages, are set by state laws. In some states it is mandatory. In the case of underinsured coverage, two different triggers apply: a damages trigger which is based on whether the limits are insufficient to cover the injured party’s damages, and a limits trigger which applies when the limits are less than the injured party’s limits. According to a 2009 survey by trade association Property Casualty Insurers Association of America, 29 states have a limits trigger while 20 states have a damages trigger. Another variation is whether a particular state requires stacking of policy limits of different vehicles or policies.
Loss of use
Loss of use coverage, also known as rental coverage, provides reimbursement for rental expenses associated with having an insured vehicle repaired due to a covered loss.
Loan/lease payoff coverage, also known as GAP coverage or GAP insurance, was established in the early 1980s to provide protection to consumers based upon buying and market trends.
Due to the sharp decline in value immediately following purchase, there is generally a period in which the amount owed on the car loan exceeds the value of the vehicle, which is called «upside-down» or negative equity. Thus, if the vehicle is damaged beyond economical repair at this point, the owner will still owe potentially thousands of dollars on the loan. The escalating price of cars, longer-term auto loans, and the increasing popularity of leasing gave birth to GAP protection. GAP waivers provide protection for consumers when a «gap» exists between the actual value of their vehicle and the amount of money owed to the bank or leasing company. In many instances, this insurance will also pay the deductible on the primary insurance policy. These policies are often offered at auto dealerships as a comparatively low cost add-on to the car loan that provides coverage for the duration of the loan. GAP Insurance does not always pay off the full loan value however. These cases include but are not limited to:
Any unpaid delinquent payments due at the time of loss
Payment deferrals or extensions (commonly called skips or skip a payment)
Refinancing of the vehicle loan after the policy was purchased
Late fees or other administrative fees assessed after loan commencement
Therefore, it is important for a policy holder to understand that they may still owe on the loan even though the GAP policy was purchased. Failure to understand this can result in the lender continuing their legal remedies to collect the balance and the potential of damaged credit.
Consumers should be aware that a few states, including New York, require lenders of leased cars to include GAP insurance within the cost of the lease itself. This means that the monthly price quoted by the dealer must include GAP insurance, whether it is delineated or not. Nevertheless, unscrupulous dealers sometimes prey on unsuspecting individuals by offering them GAP insurance at an additional price, on top of the monthly payment, without mentioning the State’s requirements.
In addition, some vendors and insurance companies offer what is called «Total Loss Coverage.» This is similar to ordinary GAP insurance but differs in that instead of paying off the negative equity on a vehicle that is a total loss, the policy provides a certain amount, usually up to $5000, toward the purchase or lease of a new vehicle. Thus, to some extent the distinction makes no difference, i.e., in either case the owner receives a certain sum of money. However, in choosing which type of policy to purchase, the owner should consider whether, in case of a total loss, it is more advantageous for him or her to have the policy pay off the negative equity or provide a down payment on a new vehicle.
For example, assuming a total loss of a vehicle valued at $15,000, but on which the owner owes $20,000, is the «gap» of $5000. If the owner has traditional GAP coverage, the «gap» will be wiped out and he or she may purchase or lease another vehicle or choose not to. If the owner has «Total Loss Coverage,» he or she will have to personally cover the «gap» of $5000, and then receive $5000 toward the purchase or lease of a new vehicle, thereby either reducing monthly payments, in the case of financing or leasing, or the total purchase price in the case of outright purchasing. So the decision on which type of policy to purchase will, in most instances, be informed by whether the owner can pay off the negative equity in case of a total loss and/or whether he or she will definitively purchase a replacement vehicle.
Vehicle towing coverage is also known as roadside assistance coverage. Traditionally, automobile insurance companies have agreed to only pay for the cost of a tow that is related to an accident that is covered under the automobile policy of insurance. This had left a gap in coverage for tows that are related to mechanical breakdowns, flat tires and gas outages. To fill that void, insurance companies started to offer the car towing coverage, which pays for non-accident related tows.
Personal items in a vehicle that are damaged due to an accident typically are not covered under the auto insurance policy. Any type of property that is not attached to the vehicle should be claimed under a home insurance or renters’ insurance policy. However, some insurance companies will cover unattached GPS devices intended for automobile use.
Main article: Auto insurance risk selection
Insurers use actuarial science to determine the rates, which involves statistical analysis of the various characteristics of drivers.
Public policy considerations
In the United States, automotive insurance covering liability for injuries and property damage is compulsory in most states, but different states enforce the insurance requirement differently. In Virginia, where insurance is not compulsory, residents must pay the state a $500 annual fee per vehicle if they choose not to buy liability insurance. Penalties for not purchasing insurance vary by state, but often include a substantial fine, license and/or registration suspension or revocation, and possible jail time. Usually, the minimum required by law is third party insurance to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle.
California and New Jersey have enacted «Personal Responsibility Acts» which put further pressure on all drivers to carry liability insurance by preventing uninsured drivers from recovering non economic damages (e.g. compensation for «pain and suffering») if they are injured in any way while operating a motor vehicle.
North Carolina is the only state to require that a driver hold liability insurance before a license can be issued. North Carolina does allow for a «fleet license» to be issued if the license holder has no insurance, however the fleet license only allows for the driver to operate vehicles owned and insured by their employer. The license holder must produce a state form (DL-123) to prove they have insurance, requiring the signature of an insurance agent, in addition to a ten dollar fee, in order to convert the fleet license to a full license.
Some states require that proof of insurance be carried in the car at all times, while others do not. For example, North Carolina does not specify that proof of insurance must be carried in the vehicle; it does, however, require that a driver have that information to trade with another driver in the event of an accident. Some states allow for an electronic insurance card to be produced on a smartphone
Arizona Department of Transportation Research Project Manager John Semmens has recommended that car insurers issue license plates and be held responsible for the full cost of injuries and property damage caused by their licensees under the Disneyland model. Plates would expire at the end of the insurance coverage period, and licensees would need to return their plates to their insurance office to receive a refund on their premiums. Vehicles driving without insurance would thus be easy to spot because they would not have license plates, or the plates would be past the marked expiration date.
The compulsory insurance debate
A brief history of car insurance
With the invention of the automobile in the late 19th century came the inevitable side effect of automobile collisions. As automotive collisions increased in frequency, it became clear that, unlike other torts, which relied on personal responsibility, there was a possibility that automobiles would need to be governed by laws because «[t]here was no way of assuring that even though fault was assessed the victim of an automobile collision would be able to collect from the tortfeasor.»
This led Massachusetts and Connecticut to create the first financial responsibility and compulsory insurance laws. Connecticut’s 1925 financial responsibility law required any vehicle owner involved in a collision with damages over $100 to prove «financial responsibility to satisfy any claim for damages, by reason of personal injury, to, or death of, any person, of at least $10,000.» This early financial responsibility requirement only required vehicle owners to prove financial responsibility after their first collision. Massachusetts also introduced a law to address the problem of collisions, but theirs was a compulsory insurance, not financial responsibility law. It required automotive liability insurance as a prerequisite to vehicle registration.
Until 1956, when the New York legislature passed their compulsory insurance law, Massachusetts was the only state in the U.S. that required drivers to get insurance before registration. North Carolina followed suit in 1957 and then in the 1960s and 1970s numerous other states passed similar compulsory insurance laws. Since the genesis of automotive insurance schemes in 1925 nearly every state has adopted a compulsory insurance scheme.
Arguments in favor of compulsory auto insurance
Advocates of compulsory auto insurance rely on the assumption that, at least some of the time, the person at fault in a car accident won’t be able to pay for the damage to the other person’s car. Because insurance has been mandatory in most states for so long, the data to prove this theory is somewhat sparse. Nevertheless, proponents of compulsory auto insurance argue that:
There is a risk of nonpayment in car accidents and compulsory auto insurance is the best way to deal with this risk.
Personal financial responsibility laws are inadequate to remedy the risk of nonpaying, at-fault, drivers.
The best way to ensure that at-fault drivers will pay for damage they cause is to require insurance before registration, and to penalize drivers if they fail to meet this requirement.
Arguments against compulsory auto insurance
Opponents of compulsory insurance believe that it is not the best way to allocate risk among drivers. Arizona, Mississippi, New Hampshire, and Virginia do not require motor vehicle insurance. In Arizona, drivers can opt to deposit $40,000 to the State Treasurer in the form of a security deposit, cash, or bond. In Mississippi, drivers can opt to utilize a cash, security deposit, or bond in the amount of the state minimums. In New Hampshire, vehicle owners must satisfy a personal responsibility requirement; instead of paying monthly premiums, and prove that they are capable of paying in case of an accident. In Virginia, vehicle owners may pay an uninsured motorist fee of 500 dollars a year to the state DMV; however this fee is not insurance. Many insurance companies oppose compulsory auto insurance, for example: the NAII (National Association of Independent Insurers). State Farm opposes compulsory auto insurance because it forces poor to choose between groceries and insurance. A study done by Dr. Robert Maril showed that, in a poor area of Arizona, 44% said they had trouble buying food or paying rent due to auto insurance. A survey done by the Montana DPHHS showed 12 of the 96 surveyed said auto insurance was a reason for needing food stamps.