State Financial Responsibility Laws

cars on the road minimum insurance requirements by state

Kentaroo Tryman/Getty Images

What is a Financial Responsibility Law?

The financial responsibility law is a state law that requires individuals to prove they have enough money or assets to cover any damages they may cause. One way to meet the financial responsibility laws is to purchase the minimum state car insurance required.

These state insurance laws protect all drivers on the road. Minimum state car insurance requirements and financial responsibility laws vary by state.

Understanding the Financial Responsibility Law

All states have financial responsibility laws. The financial responsibility law requires that people prove that they have assets on reserve to pay for damages that they are responsible for in a car accident claim.

It makes it easier to understand if you think of it as the law requiring you to be financially responsible for your actions when you own a car.

A financial responsibility law does not always require you to prove you have car insurance. However having minimum insurance for your car is the easiest way to meet the financial responsibility law, and protects you the most.

What Does the Financial Responsibility Law Have to Do With Insurance?

With insurance, when you have a claim or cause damage, the insurance company pays most of the damages and defense. If you take on the financial responsibility yourself, you will pay a lot more than just insurance costs. That's why minimum insurance makes it the easiest and smartest way for individuals to comply with the law.

5 Questions About State Financial Responsibility Laws

1. Do All States Require Car Insurance? No, although most states require drivers to purchase car insurance, not all do. But all states do have financial responsibility laws. These laws are in place to protect all drivers by requiring drivers to prove they are financially able to pay for an accident. Most drivers comply with financial responsibility laws by purchasing car insurance.

2. When Do I Need to Show Proof of Compliance With Financial Responsibility Laws?

  • After you have been involved in a car accident
  • When reinstating your driver's license after it has been suspended or revoked
  • When a police officer requests to see it
  • When you register your car

3. What Qualifies as Proof of Compliance With Financial Responsibility Laws?

  • Car insurance ID cards
  • Binder of car insurance
  • Posting a surety bond
  • Cash Deposit Proof—this is when you can prove that you have deposited the minimum amount of funds required with approved state agencies, such as state comptroller's office or the state's office of insurance
  • Certificate of Self-Insurance—this is generally for large companies or individuals who own a fleet of cars, not for individuals in most circumstances

4. Can I Comply With My State's Financial Responsibility Law Without Buying Car Insurance? In some states, you can comply with your state's financial responsibility laws in other ways than buying car insurance. Every state is different, but some ways to comply are by posting bonds or making cash deposits (see question 3 above).

5. Is it Better to Comply With My State's Financial Responsibility Laws With Car Insurance? Yes, in almost every case, purchasing car insurance is the best way to comply with financial responsibility laws. Car insurance not only provides financial protection for you when you are in an accident but will also provide for legal defense if the situation calls for it.

Some Examples of Financial Responsibility Law in Different States

The financial responsibility laws vary greatly in each state. For example, in Arizona, you can put up a $40,000 bond to prove you can pay for damages resulting from an accident, or you can buy the minimum car insurance for Arizona which is:

  • $25,000 bodily injury liability per person
  • $50,000 bodily injury liability per accident
  • $25,000 property damage liability per accident

For example, in Virginia, the law is very different. You can purchase car insurance or "pay a fee of $500 at the time of registration. Payment of this fee allows a motor vehicle owner to operate an uninsured motor vehicle."

Learn Your State's Financial Responsibility Laws

If you want to learn more about state-by-state minimum requirements, continue reading the list of the minimum state-by-state car insurance and financial responsibility law requirements or call your state insurance commissioner's office or local DMV.