Financial Responsibility Laws

Financial responsibility laws essentially say that when a person is in an automobile accident or is convicted of a moving violation, they must show that they have assets in reserve which make them able to pay for any damage they cause. It is a way of making licensed drivers financially responsible for automobile accidents.

The purpose of these state laws is to be sure that if a person causes an accident that harms others, they are able to pay for the damage done to other person’s property and injury inflicted to their person.

Different states have various ways of obtaining proof of financial responsibility from their drivers, but the most common is a law that requires licensed drivers to show that they have automobile liability insurance. Some states allow other methods of proof of financial responsibility, such as depositing cash or acceptable securities into a trust fund held by a state official or posting a bond with the state.

Almost all states require the owners of motor vehicles to have some level of automobile liability insurance coverage in place. The state of New Hampshire is the sole exception. Virginia used to offer the option of allowing a vehicle owner to pay an uninsured motorist fee instead of having auto insurance. However, Virginia changed its law and now also requires everyone to have auto insurance.

In some states, the required proof of insurance coverage or proof of financial responsibility must be presented in order to register a vehicle and get a license plate.

When Do I Need to Prove Financial Responsibility?

There are many times when a person may be required to prove their financial responsibility:

• After you have been involved in a car accident
• When a person is reinstating their driver’s license after it has been suspended
• When a police officer asks for it during a traffic stop
• When you register your car
• When leasing or purchasing a car with an auto loan.

Usually, a person can prove financial responsibility by showing their insurance identification card, which states all of the vital information about a person’s auto insurance coverage. In some states, drivers can meet their financial responsibility obligation with a surety bond or real estate bond, while other states require that assets of a particular value be set aside to cover liability from an auto accident.

What Does Automobile Insurance Cover?

Auto insurance coverage depends on the type of policy you purchase. There are six primary types of coverage included in your policy. They include the following:

• Liability Coverage: Liability coverage is mandatory in most states, and drivers are legally required to purchase a minimum amount of liability coverage. The amount is set by state law. Liability coverage includes bodily injury liability, which helps pay for costs related to another person’s injuries if a person causes an auto accident. Drivers are also required to have property damage liability, which helps pay for property damage caused by an accident.
• Uninsured and Underinsured Motorist Coverage: If a person is in an accident caused by a driver who is either uninsured or underinsured, this coverage will help pay for medical bills or, in some states, repairs to a person’s vehicle caused by the accident. This type of coverage is required in some states and optional in others. It is a good idea to have this coverage.
  • It comes into play when a person is harmed in an accident with another driver who has violated a state’s financial responsibility law and does not have any insurance. Or it helps if the driver at fault in causing the accident does not have enough insurance coverage to cover all of the harm they have caused. It would also help a person if they are the victim of a hit-and-run.
• Comprehensive Coverage: This type of coverage can cover damage to a person’s car from theft, vandalism, fire, or natural disasters. It is optional coverage, but again it is good to have it
• Collision Coverage: If a person is in an accident with another vehicle or if a person hits an object, e.g., a deer, collision coverage can help pay to repair or replace the person’s car. It is typically optional.
• Medical Payment Coverage: Medical payment coverage can help pay for the treatment and other economic consequences of injuries caused in an accident. Some states require this type of coverage, while it is optional in others.
• Personal Injury Protection: This type of coverage is only available in some states, but it can also help pay for a person’s medical expenses after an accident. Again, some states require it, and it is an option for others.

Having full insurance coverage for a person who has assets to protect, e.g., a home, retirement accounts and the like. These are assets a person would not want to lose because they do not have insurance to cover losses caused by an accident. A personal injury attorney would be able to explain the circumstances in which the various kinds of coverage would pay out to compensate for damages.

What Are the Consequences of Not Having Auto Insurance?

Having automobile liability insurance comes with certain benefits for the insured individual. It could be very costly to be without it if a person has the misfortune of being in a car accident.

One significant benefit is the fact that a person’s insurance insurance provider usually provides the person with an attorney to represent them if they are sued. The insurance pays the attorney’s fees and the costs of litigation. Without auto insurance, a person would be stuck with having to hire their own attorney. Then, even if the trial were to end in the person’s favor, they would have to pay all the court costs and attorney fees themselves.

If a person does not have insurance, causes an accident, and is sued by another motorist whom they have harmed, a person could personally owe up to hundreds of thousands of dollars if they are found liable. Another driver might be seriously injured and have tens of thousands in medical care costs and other expenses for which they would have to be compensated.

In that case, the other motorist would become the person’s creditor and could pursue a person through legal proceedings for collection of the money the liable driver owes them. A person does not want to end up in this position.

Regardless of fault in a car accident, if a person does not have auto insurance, they may also have violated their state’s financial responsibility laws. This violation may be penalized. Among the penalties in some states, there may be a law that forbids a person from asserting any claims against other motorists in the event of an accident.

However, in addition to possible penalties for violating a state’s financial responsibility law, a person could suffer other adverse consequences from driving without good insurance coverage. It is something a person really does not want to do.

Should I Contact a Lawyer?

If you have an issue that involves your state’s financial responsibility laws, you want to consult an insurance lawyer for advice. LegalMatch.com can put you in touch with an experienced attorney who will be able to advise you of your rights and let you know what possible courses of action you can take, along with what defenses you might have. You are likely to get the best result with a lawyer’s help.