Required Auto Insurance

Liability automobile insurance is required in all states. Usually, this insurance is provided under a "fault" system" - where the insurance company ("insurer") pays benefits based on each driver's fault for an accident - or the "no-fault" system, where some benefits are automatically paid regardless of who was at fault for the accident.

In either case, the states make an effort to make sure that car owners and drivers have the required liability insurance. The most common ways that the states do this is through:

• Financial responsibility/security laws, or
• Compulsory insurance

Financial Responsibility/Security Laws

In the first part of the 1900's, when the ownership and use of automobiles became more and more common and there was no such thing as auto insurance yet, some states realized the need for some type of way dealing with this issue: if someone is hurt by a driver and the driver doesn't have enough money or assets to make a lawsuit practical, who is supposed to pay for the injured person's damages, especially medical expenses?

One of the first answers to the question came in the form of financial responsibility/security laws, which are still used today by some states. Although the form of the statutes has changed over the decades, the basic idea was this:

If a driver caused an accident that resulted in the injury or death of another person, the driver was required to show "proof of financial responsibility," that is, proof that the driver could pay any judgment obtained by the injured party, and if the driver didn't do so, the driver's license could be suspended or revoked. Sometimes, the driver had to give some type of security, or property, which could be sold so as to guarantee payment to the injured person.

Over time, these types of laws became more and more complex, especially with respect to when and what type of security was needed and when and why a driver's license could be revoked in connection with the enforcement of these laws. Today, financial responsibility/security laws are not widely used.

Compulsory Insurance

At about the same time that some states developed financial responsibility/security laws, other states enacted "compulsory insurance," which requires drivers to get and maintain certain insurance coverage. In addition, these laws require that the owner-driver present proof of insurance at the time he or she registers the car with the state and gets or renews license plates.

Also, compulsory insurance laws often specify exactly which types of coverage a car-owner must have, like liability coverage, and how much coverage is required, which is known today as "state minimum" coverage.

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