What is Car Insurance “financial responsibility” law?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jan 28, 2021

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A financial responsibility law requires you to prove you have enough money saved to pay for damages resulting from a car accident. States with this type of law may not require that you have proof of insurance at the time of vehicle registration.

However, failure to demonstrate the required level of financial responsibility at the time of accidents or a traffic violation can result in suspension of your driver’s license or revocation of your car registration. Each person involved in an accident, regardless of the person at fault, must show they have the necessary requirement or face the penalties imposed by the law for your state. Maintaining an automobile insurance policy is the most common way to comply with the law.

What satisfies financial responsibility laws?

Although most states require motor vehicle owners and drivers to purchase a car insurance policy with at least the minimum bodily injury liability and property damage liability coverage amounts, those that do not require you satisfy their state’s minimum car insurance laws by other means. In some states, individuals can comply with the law by surety bond or real estate bond while other states required a certain amount of assets set aside to cover a car accident. Some larger companies or corporations have the option to show proof that they can satisfy the financial responsibility law for their fleet of vehicles through self-insurance instead of buying commercial car insurance for their company vehicles. Those states allowing proof of insurance as a form of compliance to their auto insurance coverage laws are normally satisfied with a current insurance card issued by your insurance company. Your insurance carrier will provide you with an updated card with effective policy dates after each renewal.

Although there may be several ways to comply, the best way to comply with any states’ automobile liability insurance law is by purchasing a form of insurance, even if it is only the minimum insurance coverage. Penalties for driving an uninsured motor vehicle can be severe.

Auto insurance policies not only provide financial protection for you when you are in an accident but also help with covering court costs related to your accident and covering the cost of an attorney.

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