You have likely heard family members or friends mention auto insurance, and there is no doubt you have seen commercials and advertisements for a multitude of auto insurance companies. But have you ever stopped to ask why car insurance is mandatory? And is it possible to drive without it?
The bottom line is, car insurance is a legal requirement in almost every state. Beyond the legal requirements, an auto insurance policy provides additional financial protection for you and your passengers if you are involved in a car accident.
Why is car insurance required?
Almost all states require drivers to carry at least a minimum amount of auto insurance coverage. And if you look at the minimum requirements within each state, you will quickly see that the required coverage is largely focused on liability insurance. Liability coverage is critical because it helps pay for injuries and property damage you may cause to someone else if you are at fault in an accident. Liability coverage can help other drivers become whole again after an accident and reduce the chance of incurring out-of-pocket expenses from an incident they did not cause. Depending on your state, you may also be required to carry additional coverage to offset medical expenses for you and passengers in your vehicle too.
Beyond the legal coverage requirements for your state, if you lease or finance a vehicle, the lender will almost always require additional coverage and even higher coverage limits in some cases. Most lenders require you to add comprehensive and collision coverage to your policy. These coverage types help pay to repair your vehicle’s damage from either an accident or something out of your control, such as a hailstorm or hitting an animal. A leased vehicle may be required to carry higher liability limits since the lessor is technically the owner of the vehicle. You may also be required to carry gap coverage to cover your vehicle’s depreciated value if it were to be totaled in an auto accident.
Before you finalize your auto insurance policy, it is essential to understand both your state legal requirements as well as the requirements from your lender or lessor so that you are properly insured.
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 car insurance do you have to have?
State auto insurance laws fall into one of two buckets: at-fault and no-fault laws. For at-fault states, one of the drivers will be determined to be at-fault for an accident, which means they are financially responsible for the accident. No-fault states require drivers involved in an accident to file a claim with their own insurance first, regardless of who is at fault or caused the accident. Then, once the fault is determined, the at-fault party’s insurance might cover the rest of the expenses.
Liability requirements are listed as three numbers, which are: bodily injury liability coverage per person, bodily injury liability coverage per accident and property damage liability per accident coverage. Uninsured motorist and underinsured motorist coverage will follow a similar format in cases where these coverage types are required. Not all states require uninsured motorist or underinsured motorist coverage. And only a few states offer uninsured motorist property damage coverage.
PIP coverage may also be required in some states, as well as medical payments coverage in a few cases. Reviewing your car insurance quote or auto insurance declarations page will help you understand your coverage requirements in your state.
|State||Minimum liability requirements||Other state requirements|
|Michigan||50/100/10||Six PIP options: minimum $50,000 for insureds on Medicaid|
|New Hampshire*||25/50/24||25/50 UM|
|New Jersey||15/30/5||15/30 UM/UIM
|New York||25/50/10||25/50 UM
|North Carolina||30/60/25||30/60/25 UM/UIM|
|North Dakota||25/50/25||25/50 UM/UIM
|South Carolina||25/50/25||25/50/25 UM|
|South Dakota||25/50/25||25/50 UM/UIM|
|Washington, D.C.||25/50/10||25/50/5 UM|
|West Virginia||25/50/25||25/50/25 UM|
*Minimum limits for New Hampshire and Virginia reflect minimum coverage requirements for drivers who decide to obtain auto insurance coverage.
Frequently asked questions
When do I need to insure a vehicle?
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.
How much does auto insurance cost?
The average cost of auto insurance in the United States is $1,674 per year for a full coverage policy. However, your premiums are based on numerous personal factors, such as age, driving history, vehicle type and usage, ZIP code (in most states) and your credit score (in most states).
How do I save on auto insurance?
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.
What happens if I do not carry the minimum amount of insurance?
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.