If a motorist resides in the United States the chances are that they will be mandated to carry an auto insurance policy or some kind of financial responsibility in order to operate a vehicle legally. The majority of states including the District of Columbia require residents to be financially responsible for damages and injuries resulting from an accident in a few different ways.
Certain states will allow motorists to obtain a certificate of deposit or bond from the state's governing motor vehicle department to ensure that compensation is in place in case of an accident, but due to the high monetary amount that must be deposited most individuals choose the option of purchasing a car insurance policy to make complying with states' laws more feasible.
States such as Virginia allow citizens to operate uninsured at their own risk in exchange for a $500 annual fee; this option is highly discouraged since it will leave the motorists vulnerable to lawsuits to pay for injuries and damages sustained by another party that they may cause while operating their vehicle; in many cases property damage and bodily injury can easily exceed $500.
Why Auto Insurance is Made Mandatory
Every state of the union has very good reason to mandate automobile coverage; this is done with the intention of protecting citizens following a traffic collision. States set requirements based on what they feel will be sufficient and reasonable to cover bodily injury and property damage that is caused by motorists and to ensure that the party deserving of compensation has a way to obtaining it.
States generally follow one of two laws pertaining to car insurance; No Fault and Financial Responsibility. No fault states will usually require drivers to carry what is called Personal Injury Protection (PIP) which will pay for the injuries of the insured and passengers regardless of who is at fault up to the limit of the policy; in addition they will also require these individuals to carry Property Damage Liability that pay for the damages to another party's property caused by the policyholder.
Financial Responsibility states will also require property damage liability, but instead of PIP they will require Bodily Injury Liability which pays for injuries suffered by the other party rather than the insured. In some states Uninsured Motorist is also made a requirement due to the unfortunate number of drivers who choose to operate automobiles without coverage; this type of coverage will compensate the policyholder if they are involved in a collision with an uninsured or underinsured driver or if victim of a hit and run.
Another major reason that auto insurance is required by law is that it helps keep many cases out of courtrooms and lowers the amount of lawsuits; with the exception of major accidents, many cases are settled out of court. For instance, if a driver is in a small fender bender and the damage to the vehicle is in the amount of $1,500 and the at fault driver has a policy limit of $10,000 in property damage liability, the insured's carrier will simply pay for the repairs thus eliminating any reason to file a lawsuit; it is also beneficial to the policyholder because without it, they probably would have had to pay out of pocket or gone through a legal process.