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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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jul 16, 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 through the purchase of a surety bond or real estate bond. Other states require 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, which has also become increasingly common in health insurance for some corporations. The idea is each insured pays a premium towards a large fund every month, and claims are paid out of that fund.

Those states allowing proof of insurance as a form of compliance to their vehicle liability insurance coverage laws are normally satisfied with a current insurance card issued by your insurance company. Your motor vehicle liability 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 from the state associated with driving an uninsured motor vehicle can be severe. They’re worse when you account for the financial liability of lawsuits that could follow from injured parties.

Auto insurance policies provide protection for you and the parties around you on the road. If you choose to buy additional insurance, you can also cover your own auto repair bills after an accident. If you’re leasing or financing a car, your financer may have their own insurance requirements.

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Do You Need Help with an Auto Accident?

Once you get a driver license, make sure you sign up for an insurance policy before you get on the road. You can avoid license suspension, financial loss, and the imposition of an additional financial responsibility requirement later on.

Auto insurance policies offer a wide range of coverages that you can mix and match to meet your needs. Especially when driving older cars, some drivers choose to simply meant the state liability insurance policy minimums. Insurers can help you get acceptable proof and find a plan that makes sense for you.

If you need legal assistance, call a lawyer as soon as possible. A qualified attorney can protect your interests and make sure you’re not held responsible for damage to property and other costs if not necessary.

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