Compulsory Auto Insurance

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Compulsory Car Insurance

The legislation in nearly all states requires drivers to carry at least the minimum amount of liability car insurance coverage set by each state before they can legally drive a vehicle. More specifically, auto liability insurance is mandatory in 49 states ( all except New Hampshire) and the District of Columbia. Liability insurance provides the policyholders with protection against the ensuing financial liability when they are at fault in an accident. Drivers in New Hampshire are required to prove that they can pay a sufficient amount of money in the event of an accident caused by them.

Available in most states as split limit liability coverage ( bodily injury limit per person/ bodily injury limit per accident/ property damage limit) or combined single limit liability coverage, liability car insurance covers costs incurred in both bodily injury and property damage to the third party when the policyholder is deemed responsible. Liability Bodily Injury provides payment for medical expenses, suffering and lost paychecks of the other driver involved in a collision caused by the policyholder, while Liability Property Damage pays the damage to the motor vehicle of the third party ( vehicle repair costs) and loss of its use. The minimum amount of liability coverage required by legislation varies by state.

Compulsory auto insurance laws usually have the support of the general public, although compliance with such laws is generally poor. According to the latest year available statistics, the percentage of uninsured motorists nationwide was unfortunately 12.6% ( in 2012). The 2014 Insurance Research Council report indicated that the estimated percentage of uninsured drivers in the US ( based on insurance claims) is 14% nationwide.

California was the state with the highest number of uninsured motorists,( 4.1 million), followed by Florida with 3.2 million and Texas with 1.6 million, while Oklahoma was the state with highest percentage of uninsured motorists (26%) and Massachusetts the state with the lowest percentage (4%). The National Association of Insurance Commissioners has emphasized that strict enforcement of compulsory auto insurance legislation, with considerably high and mandatory non-compliance fines for first time offenders may be the only solution to effectively reducing the number of uninsured motorists.

According to the risk assessment experts at Risk Information, Inc, the main factor that drives decisions about purchasing compulsory auto insurance or not is typically the cost of the minimum amount of coverage set by state laws. High liability insurance costs are not necessary directly proportional with the uninsured motorist rates i.e. a study has shown that despite the significant liability coverage costs in states such as Louisiana, New York and New Jersey, the uninsured motorist rates in these states were 12% or less. But generally, affordability plays a key role in drivers decisions to buy mandatory liability coverage and thus comply with the state legislation.

Insurance companies and state insurance/motor vehicle departments are cooperating to address the uninsured motorist issue, while implementing new techniques such as electronic insurance verification. Insurer verification laws in each state stipulate that all insurance companies submit their complete, updated lists of policyholders to a state agency or outside vendor in order to match them to vehicle registrations (computer data laws). The state agency can also use these lists in order to verify registration applicants' declarations that compulsory auto insurance is in effect.

According to Property Casualty Insurers Association of America, as of August 2015, a total of 30 states allowed online delivery of auto insurance documents and notices.and 19 states approved e-posting laws that will enable policyholders to view their standard policies as well as endorsements on a website.

Physical proof of a valid vehicle insurance policy ( typically a card issued by the insurance company) is also required by law in some states. Likewise, 39 states require drivers to carry valid evidence of their compulsory auto insurance policy in their motor vehicles at all times. In about 25 states, evidence of liability coverage is required when a vehicle is registered, while in 40 states, motorists are required to produce evidence of mandatory car insurance when involved in an accident.

The ”liability only” coverage policy represents the minimum level of coverage required by the state law and therefore it is the cheapest auto insurance. However, given that the financial liability in the event of an at-fault accident varies according to the extent of the damages, it is in best interest of the policyholder to select a limit higher than the state minimum liability coverage requirements for better protection in case of an accident caused by the policyholder.