State Financial Responsibility Laws

Several cars parked on a public street expose the owners to liability.
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The financial responsibility law is a state law that requires businesses and individuals to prove they have enough money—or assets—to cover any damages they may cause from an accident. 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. You can find the state insurance commissioner's office or local DMV that handles these issues by doing an internet search for insurance regulation in your state.

Understanding the Financial Responsibility Law

All 50 states have financial responsibility laws. The financial responsibility law requires that people prove that they have assets in reserve to pay for damages that they are responsible for in a car accident claim. Most states will accept proof of insurance coverage or a surety bond as proof of meeting the state's minimum requirements.

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.

Financial Responsibility Law and 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.

Proving You Have Coverage

Most—but not all—states require drivers to purchase car insurance. 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.

You may be asked to show you comply with the state's requirements:

  • 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

Every state is different but, In some, you can comply with your state's financial responsibility laws in other ways than buying car insurance. Your proof of meeting the responsibility law can be in the form of an automobile insurance ID card or a binder of car insurance. The binder is the temporary evidence an insurance provider will give you as you await the underwriting of your full policy.

Another way to meet the requirement is through a surety bond. A surety is a guarantee that you can assume responsibility—it functions in the same way as an auto insurance policy.

You may also be able to use proof of a cash deposit. This evidence shows you have deposited the minimum amount of funds required with an approved state agency, such as state Comptroller's Office or the state's Office of Insurance.

Also, some large companies or individuals who own a fleet of cars may use a certificate of self-insurance. Again, you will need to deposit a substantial sum with an approved state agency to receive a certificate.

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.

Examples of the Law in Two 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

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." While they may operate a vehicle, they are still financially responsible to cover any damages they cause.

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.