Financial responsibility law as it pertains to automobiles requires that people who drive motor vehicles on public roads and highways demonstrate an ability to meet minimum levels of financial responsibility in the event they are at fault in a car accident and cause damage to property or injury to others. The way most financial responsibility laws work today is relatively simple—the law requires that all drivers maintain minimum amounts of car insurance coverage.
Every state in the country has some form of a financial responsibility law. In some states, the statute is actually called the financial responsibility law, while in others it may be referred to as a mandatory insurance law or a compulsory insurance statute. They require drivers to provide proof of means to pay for damages or injuries they may cause an accident.
Some states allow drivers to post cash bonds or other instruments of value with a state court, State Department of Motor Vehicles or other government agencies as collateral in the event the driver causes an accident on public roads or highways. In states that allow this type of self-insurance, people that are able to place sufficient collateral with the State are not required to maintain state-required minimum levels of car insurance. Not all states allow for this type of self-insuring activity and require that drivers actually purchase a liability insurance policy.
The minimum levels required by various State Departments’ of Motor Vehicles vary between states however the types of coverage required remain virtually the same. In every state, drivers are required to maintain minimum levels for damage to other vehicles and injury to others in accidents that the driver is found to be at fault in. The required minimum levels typically range from around $20,000 to $50,000 for each type of coverage.
Years ago, proof of financial responsibility was only required after a driver was involved in an at-fault accident. However, many states have created much stricter requirements for providing proof of financial responsibility.
Further still, many states allow law enforcement agencies to set up roadblocks for the sole purpose of making sure that drivers on public roads are financially responsible. At these roadblocks, drivers are required to not only provide proof of a valid driver’s license and a current car registration; they are required to provide proof of insurance as well. If the driver cannot furnish proof of a valid insurance policy to the officer, they are often ticketed, or in some cases, taken into custody.
In some cases, drivers that operate motor vehicles on public highways and roads without maintaining minimum levels of financial responsibility or car insurance liability are subject to having their driver’s license suspended. Also, many states require insurance companies to notify the State Department of Motor Vehicles whenever drivers let their policies lapse or have policies cancelled. This too can lead to a license suspension if the driver cannot provide a valid reason for not maintaining coverage; such as the sale of a vehicle.