The Basics of Car Insurance Laws

Almost anywhere you operate a motor vehicle you must provide “proof of financial responsibility.” In other words, you must satisfy local authorities that either you or your insurance company can and will pay for the consequences of a nasty traffic accident. More specifically, you must prove that you can afford to pay for property damage and medical expenses if you drive negligently or recklessly. For most drivers in most places, “proof of financial responsibility” is a polite and vaguely deceptive phrase that translates “car insurance.” Moreover, in most places with paved roads, the car insurance laws are clear: No insurance, no driving.

Consequences of failure to comply with car insurance laws

In many states, failure to comply with car insurance laws leads almost immediately to suspension of your driver’s license and cancellation of your car registration. With the suspension and cancellation in effect, you become vulnerable to stop and citation every time you get behind the wheel of your car. In some circumstances, law enforcement authorities may impound your vehicle and confiscate your driver’s license. In order to restore your driving privileges, you will have to supply your state authorities with proof of financial responsibility, pay penalties and fees for reinstatement of your license and registration, and pay storage fees for your vehicle. Given that basic liability insurance for a driver with a clean record costs only $50(US) per month, you pay far less for obeying the car insurance laws than you will pay for violating them.

If you cause a major traffic accident and you have no insurance, you are personally liable for all the damage and injuries you caused. Accident victims have every right to sue you for their losses, and the courts may place liens on all of your property and assets. The courts may attach your bank accounts, garnish your wages, and place a lien on your home. Even if you have very few assets or file for bankruptcy, the court’s orders remain in effect until you have made restitution for the damage or settled all of the claims against you.

Finance contracts supplement the car insurance laws.

The car insurance laws protect people and their property. They make no provision for protection of your own vehicle for damage or theft. If you have financed or leased your vehicle, your lending institution wants to protect its investment. Your loan or lease documents undoubtedly stipulate the lender’s requirements for your insurance coverage, demanding that you carry “comprehensive” and collision insurance. You may set the deductibles according to your budget, but you must carry insurance according to your contract’s requirements. The contract carries as much legal weight as the car insurance laws.