history of car insurance
With the invention of the automobile in the late 19th century came the inevitable side effect of automobile collisions. As automotive collisions increased in frequency, it became clear that, unlike other torts, which relied on personal responsibility, there was a possibility that automobiles would need to be governed by laws because here was no way of assuring that even though fault was assessed the victim of an automobile collision would be able to collect from the tortfeasor.”
This led Massachusetts and Connecticut to create the first financial responsibility and compulsory insurance laws. Connecticut’s 1925 financial responsibility law required any vehicle owner involved in a collision with damages over $100 to prove “financial responsibility to satisfy any claim for damages, by reason of personal injury, to, or death of, any person, of at least $10,000.”This early financial responsibility requirement only required vehicle owners to prove financial responsibility after their first collision. Massachusetts also introduced a law to address the problem of collisions, but theirs was a compulsory insurance, not financial responsibility law. It required automotive liability insurance as a prerequisite to vehicle registration.
Until 1956, when the New York legislature passed their compulsory insurance law, Massachusetts was the only state in the U.S. that required drivers to get insurance before registration. North Carolina followed suit in 1957 and then in the 1960s and 1970s numerous other states passed similar compulsory insurance laws. Since the genesis of automotive insurance schemes in 1925 nearly every state has adopted a compulsory insurance scheme.
Arguments in favor of compulsory auto insurance
Advocates of compulsory auto insurance rely on the assumption that, at least some of the time, the person at fault in a car accident won’t be able to pay for the damage to the other person’s car. Because insurance has been mandatory in most states for so long, the data to prove this theory is somewhat sparse. Nevertheless, proponents of compulsory auto insurance argue that:
- There is a risk of nonpayment in car accidents and compulsory auto insurance is the best way to deal with this risk.
- Personal financial responsibility laws are inadequate to remedy the risk of nonpaying, at-fault, drivers.
- The best way to ensure that at-fault drivers will pay for damage they cause is to require insurance before registration, and to penalize drivers if they fail to meet this requirement.
Arguments against compulsory auto insurance
Opponents of compulsory insurance believe that it is not the best way to allocate risk among drivers. Arizona, Mississippi, New Hampshire, and Virginia do not require motor vehicle insurance. In Arizona, drivers can opt to deposit $40,000 to the State Treasurer in the form of a security deposit, cash, or bond. In Mississippi, drivers can opt to utilize a cash, security deposit, or bond in the amount of the state minimums. In New Hampshire, vehicle owners must satisfy a personal responsibility requirement; instead of paying monthly premiums, and prove that they are capable of paying in case of an accident. In Virginia, vehicle owners may pay an uninsured motorist fee of 500 dollars a year to the state DMV; however this fee is not insurance. Many insurance companies oppose compulsory auto insurance, for example: the NAII (National Association of Independent Insurers). State Farm opposes compulsory auto insurance because it forces poor to choose between groceries and insurance. A study done by Dr. Robert Maril showed that, in a poor area of Arizona, 44% said they had trouble buying food or paying rent due to auto insurance. A survey done by the Montana DPHHS showed 12 of the 96 surveyed said auto insurance was a reason for needing food stamps.
Requirements by state
The tables below contain minimum liability requirements for vehicle owners within the United States. They are divided into two categories: compulsory and non compulsory. See the table on the right for an explanation of the values.
Understanding the tables: XX/XX/XX = Bodily Injury Limit (per individual)/Bodily Injury Limit (per accident)/Property Damage Limit For example, limits of 25/50/20 means after “an accident each person injured would receive a maximum of up to 25,000 with only 50,000 allowed per accident (ex. 2 people needing 25,000, if the need is more such as 3 people needing 25,000 then whoever files first gets first access to the 50,000 limit and you may be sued for the rest if the accident was your fault). The last number refers to the total coverage per accident for property damage which in this case would be 20,000.”
|State||Minimum Insurance Requirements||Non compulsory insurance state|
|Arizona||15/30/10||Yes, however you will be required to be able to deposit $40,000 in cash, bonds, or certificate of deposits with the State Treasurerif you do not purchase insurance.|
|District of Columbia||10/25/5|
|Mississippi||25/50/25||Yes, however you are required to either post a bond equal to the state minimums or make a cash or security deposit equal to the minimum limits.|
|New Hampshire||N/A (Personal Responsibility Only)||Yes, however you would be held responsible by law to pay for any bodily injuries or property damage in the event of an accident.|
|Texas||30/60/25||Yes, however financial responsibility should then be established through a surety bond or a deposit of $55,000 with the comptroller or the county judge.|
|Virginia||25/50/20||Yes, however you will be required to pay $500 a year to drive uninsured in Virginia. (The fee can be prorated if you want to become insured in a shorter time than a year.) However this fee to the state DMV is NOT insurance; you would be held responsible for any injuries or damage in an accident.|