Why is there required car insurance coverage in most states?

States require car insurance to reduce the number of lawsuits and keep insurance rates down. If everyone is insured, car insurance companies can charge everyone less money because they don’t have to make up for the money they lose when people drop coverage. You will need to meet your state’s auto insurance requirements to legally drive, so start comparing rates for required car insurance coverage here with our free tool.

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Tonya Sisler has a Bachelor’s Degree from the University of South Carolina in Journalism and has worked for 15+ years in management. She has also completed a proofreading certification and is currently a professional writer.

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Brad Larson has been in the insurance industry for more than a dozen years. He started out as a claims adjuster for a national carrier. He has since switched to the agency side of the business. Brad is licensed in all P&C lines.

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Reviewed by Brad Larsen
Licensed Auto Insurance Agent

UPDATED: Jun 4, 2021

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It is a fact of life that people will run into each other when driving on the roads. Be prepared if this happens to you by checking car insurance comparisons for price and coverage. Researching car insurance quotes is a good idea because of this guarantee. Property damages may result and bodily injuries can occur.

Everyone involved in the car collision will need to have their vehicles repaired and their medical injuries attended, and it is right for the person who caused the damages to be the one who pays for them. Be prepared; find cheap car insurance quotes, enter your ZIP code into our FREE comparison tool above!

When people are uninsured and have no car insurance, they cannot always pay all of the bills. Sometimes, the collision is between two vehicles but other cars, the passengers and even pedestrians and city property can also be injured and damaged. A person who neglects to purchase car insurance and causes an accident may not be prepared to pay everybody’s bills. Get started now by entering in your ZIP code and receiving FREE car insurance quotes!

To Reduce the Numbers of Lawsuits

In the case described above, the courts can be filled with cases where everyone affected by the car collision is suing the at-fault driver who doesn’t have car insurance. One way to reduce the numbers of these types of lawsuits is to require that all drivers purchase car insurance coverage.

When everyone has car insurance, the affected third parties receive payment for their property damage and medical bills. First, the car insurance companies will determine who had the majority of the fault for the accident. Once this has been determined, affected third parties file claims with the at-fault party’s car insurance company.

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The Requirements in Tort States

In tort states, states where drivers are allowed unrestricted access to the courts to sue each other, everyone who drives is required to purchase car insurance coverage to pay for the bodily injuries they cause, called bodily injury liability coverage.

They must also purchase car insurance coverage for the property damages that result from the accident, called property damage liability coverage.

As affected third parties file claims for the bodily injury and property damage liability coverage, their vehicles can be fixed, their injuries healed and they have no need to file lawsuits.

Extra Requirements in No-Fault States

Not every state is a tort state where fault has to be determined before medical bills can be paid. Some states are known as no-fault states where no fault will be assigned in order to determine which car insurance company will pay the medical bills. In no-fault states, lawsuits for bodily injuries are restricted. People may still sue each other, but the no-fault states have strict rules as to when this can occur.

Drivers in no-fault states must purchase liability coverage because there are times when drivers can sue each other. The other reason is that the no-fault states do not apply the no-fault system to property damages; fault will be determined in this instance so that the at-fault driver’s property damage liability coverage can pay the repair bills.

Personal Injury Protection Insurance

In order to reduce bodily injury-related lawsuits, drivers in no-fault states must purchase another type of car insurance coverage, called personal injury protection (PIP) insurance. When car collisions occur in no-fault states, each driver files a claim with his or her own car insurance companies for the PIP insurance coverage and their medical bills are paid.

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For Payment of Damages the Uninsured Cause

Making car insurance coverage mandatory serves another purpose; when people are caught driving without proof of car insurance, they may need to pay a fine as a penalty. What some states do with the money that is collected is pay the bills when people driving without car insurance cause damages they cannot pay for.

To Keep the Cost of Car Insurance Down

The cost of car insurance coverage is another problem that can be mitigated when everyone purchase a car insurance policy. If people have a choice, they opt to not purchase car insurance because it is an expense that they are paying every month or every year that does not give them anything in return if they aren’t having any accidents.

During difficult financial times, the first place that people choose to cut back is on their car insurance coverage. When this happens, car insurance companies are losing a lot of revenue and they need to find a way to make up for this loss. Generally, car insurance companies increase their revenues by raising everybody’s rates.

The states like to keep the price of car insurance coverage at a minimum. If everyone is insured, car insurance companies can charge everyone less money because they don’t have to make up for the money they lose when people drop coverage.

Liability Insurance Only Pays Third Party Expenses

The car insurance coverage that is mandatory is actually liability coverage that pays the bills of those who have been injured and those whose property has been damaged. The at-fault policy holder who may also have medical bills and property damage bills to contend with will not be able to access the liability coverage for payment of these bills.

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Optional Coverage

People do have the option of purchasing extra coverage that will apply toward their own bills. In some states, this optional coverage is not optional but is required. This type of coverage includes:

  • Uninsured Motorist Bodily Injury
  • Uninsured Motorist Property Damage
  • Underinsured Motorist Bodily Injury
  • Underinsured Motorist Property Damage

Uninsured Motorist Bodily Injury/Property Damage

The states know that a problem remains even though they have tried to prevent the problem of uninsured drivers; not everyone follows the law. In these cases, some states will suggest or they make it mandatory that drivers insure themselves against the possibility of being hit by an uninsured or hit-and-run driver.

The uninsured motorist coverage applies after the affected party has been hit and cannot receive payment for medical bills and property damage bills. This coverage can ensure that these drivers do not go to the courts for payment of their bills.

Underinsured Motorist Bodily Injury/Property Damage

Sometimes, drivers do follow the law and they purchase the liability coverage they need to be legal drivers. Problems arise when these drivers do not have enough insurance to cover the bills.

For example, a state may require that drivers purchase $25,000 bodily injury liability to cover one person’s medical bills. If this particular person’s injuries were so severe that the bills surpassed $25,000, the at-fault driver will be personally responsible for paying the rest.

If the bills were to require another $25,000, for example, the injured party may consider a lawsuit for payment of these bills. The states that require underinsured motorist coverage reduce these types of lawsuits by requiring this insurance. After the at-fault party’s car insurance company is no longer required to pay the bills, the injured party’s underinsured motorist insurance covers the rest.

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Car Insurance for the Best Price Possible

The fact that car insurance is mandatory doesn’t mean that it has to be burdensome. People can find liability coverage as well as optional coverage for a reasonable price if they seek quotes from more than one car insurance company. The FREE car insurance comparison feature on this website will offer several quotes by putting in your ZIP code!

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