Almost all states have some sort of car insurance requirement, and those that do not will typically require proof of financial responsibility in its place. But why is car insurance mandatory? And what happens if you drive without auto insurance? The main reason why car insurance is mandatory is because it protects other people from financial losses if you cause an accident.

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Going without car insurance coverage can result in fines, penalties, loss of driving privileges and even jail time in some cases. And while not all coverage options are required, there are also certain types of optional coverage that may be worth considering, as they can also help to protect you, your vehicle and your passengers.

Why is car insurance required?

Car insurance is required in order to provide financial protection for people who are injured or have their property damaged through no fault of their own. For instance, if you get hit by another driver, get injured and receive damage to your vehicle, the other driver’s liability insurance is typically what pays for your injuries and damages. Likewise, if you cause damage to another party’s property or injury to others with your vehicle, your liability insurance is what pays for their medical expenses, lost wages and vehicle damages.

While each state has its own car insurance requirements, nearly all require drivers to carry a minimum level of liability insurance, since this coverage is what protects others in case of losses or injuries caused by another driver. In some states, you may also need to carry personal injury protection (PIP), which pays for you and your passengers’ injuries, lost wages and other medical expenses in covered claims. Certain states may also have uninsured/underinsured motorist insurance requirements. This type of coverage is designed to cover situations in which you are hit by someone without insurance, in a hit-and-run or by a driver without enough insurance coverage to cover your losses.

All auto insurance requirements are designed to make the party who’s not at fault whole again, with the exception of PIP, which can be used even if you’re at fault in the accident.

Where is car insurance required?

Almost all states require you to carry minimum liability coverage, with some states mandating personal injury protection (PIP), uninsured and underinsured motorist coverage (UM/UIM) and medical payments in addition to the minimum liability requirements. Familiarizing yourself with your auto insurance coverage requirements can help you prepare in advance for what coverage types you will need when it’s time to set up your insurance policy.

The two exceptions to the state mandates are New Hampshire and Virginia, where auto insurance is technically not a requirement. New Hampshire requires you to meet minimum financial requirements to forego auto insurance. In addition, if you are involved in an at fault accident, you could be held responsible for paying costs related to injuries, vehicle damage and legal fees out of pocket.

In Virginia, you can pay a $500 Uninsured Motor Vehicle fee each year, but it provides zero auto insurance coverage should you be at-fault in an accident.

How much does car insurance cost?

How much car insurance costs will vary by state and other factors. However, the national average cost of car insurance is $2,014 per year for full coverage car insurance as of 2023, and the average cost of minimum coverage is $614 per year, according to Bankrate’s analysis of average rate data from Quadrant information services.

That’s just the average, though. In general, the following may impact the cost of car insurance for drivers across the nation:

State demographics

Every car insurance company sets its own rates based on the local ZIP code, and each area in the state has different crime statistics, weather events, vehicle repair costs and statistical likelihood of filing claims. These factors help determine the base rate for the ZIP code, which the carrier uses in its own rating structure and pricing.

Let’s look at some of the 2023 average car insurance costs in various states for full coverage. Florida and New York have the highest average annual rates for full coverage car insurance, at $3,183 and $3,139, respectively. Meanwhile, drivers living in Kentucky pay an average of $2,124 and Montana drivers pay an average of $1,889 per year. But Vermont drivers only pay an average of $1,06,1 and in Idaho, the average is $1,133.

Personal factors

There are also personal factors that determine your cost of auto insurance. These factors can include your:

  • Age and gender (in most states)
  • Credit score (in most states)
  • Marital status
  • Prior insurance
  • How many miles you drive
  • The make and model of your vehicle
  • Your coverage choices and limits

Rates can vary widely by age, even with a clean driving record. Being a high-risk driver with a speeding ticket or DUI will also affect your car insurance rate. Choosing more coverage with higher limits can also cost more, but will provide greater financial protection in the event of an accident, reducing your chances of paying out-of-pocket if you’re at fault.

Frequently asked questions

    • If you own a vehicle that is registered to the state, it probably needs insurance on it, unless you live in New Hampshire or Virginia. Keep in mind those states have unique coverage requirements. In other states, insurance is mandatory for registered vehicles. Speak with a licensed insurance agent about your unique situation to further understand your car insurance requirements.
    • It’s always a good idea to shop around to find the best car insurance rates on the coverage you need. Rates can vary widely from one company to the next, so the only way to know if you’re getting the best deal is to compare quotes for the same amount and types of coverage from different carriers. Getting car insurance quotes from several companies can help you determine which company offers the best value for the cheapest price. You can also find out which companies offer the coverage you need and which discounts you may qualify for.
    • There are multiple ways to save on your premiums so you can afford the most amount of coverage possible for your budget. One method is to shop around and compare multiple carriers, which helps you find the lowest rates for the coverage you need. Another method is to review all possible discounts since most carriers offer a wide range of additional savings.
    • The consequences for getting caught driving without insurance coverage vary from state to state. Typically there are steep fines involved, license suspensions and even possible jail time. Not only is it illegal and may result in steep penalties, but driving without insurance puts you at extreme financial risk should you be at fault for an accident.