Why Is It Required to Have Car Insurance?

In 49 states in the United States, there is some form of compulsory insurance for motor vehicles. Many people ask, “Is car insurance required?” since it may not be immediately apparent if you see yourself as a good driver willing to pay for any potential damages to your car. The answer to “Why is car insurance mandatory?” lies in the type of car insurance. Perhaps you’re looking to why you need car insurance. There are both mandatory and optional coverages to consider.

In this article

    Is car insurance mandatory in the U.S.? 

    Car insurance isn’t mandatory at the federal level in the United States, though all but one of the 50 states do make some kind of coverage required.

    This means that what counts as “state minimum compulsory insurance” in each state will be slightly different. These minimums are what the state considers the minimum you should purchase to cover your liability adequately.

    States like Iowa, Ohio, and Wyoming have meager costs. Other states may have high premiums due to the high cost of living in the state, but the minimum coverage is lower, like New Jersey, Michigan and Florida. As a result, the minimum coverage could pay less in a costly accident.

    Costs for minimum car insurance are reliant on the amount of compulsory coverage in the state and how common expensive accidents are, and the typical costs of those accidents. States like Michigan have specific laws requiring unlimited personal injury protection coverage that change how much it costs to insure a motorist.

    Why do states make car insurance mandatory? 

    Mandatory minimum car insurance is liability insurance, making it different from many other kinds of insurance you probably have considered purchasing. If you own a homeowner’s policy, a healthcare insurance policy, or a renter’s insurance policy, those all focus on recouping losses that you experience. You’re buying them to protect yourself or your property.

    [ Read: What’s the Average Cost of Car Insurance in the U.S.? ]

    However, you don’t drive your house around, potentially harming other people. Car accidents have adverse effects on other people, and liability coverage is mostly focused on the two kinds of harm you can cause if you are at fault in an accident: medical expenses and damage to the other vehicle.

    It can be tempting to feel like car insurance should be optional until you consider the results if someone else runs into your car. Suppose you had a big pile of medical bills and a totaled car, all because someone without liability coverage made a careless driving choice. In that case, you probably see why mandatory minimum car insurance gives everyone a base level of protection from other drivers.

    New Hampshire, the only state that doesn’t require car insurance, still has it’s own version of liability. You’re allowed to either have the insurance or be willing to pay those costs yourself if you don’t have insurance. It’s not a mandatory insurance policy, but the liability is still there, so most people opt to get coverage.

    What happens if I don’t have car insurance? 

    Getting pulled over when you do not have car insurance in a state with mandatory minimum car insurance is very costly. Even a first offense of driving without insurance can result in a suspended license, large fines or even having your car impounded in some states. Second offenses are more likely to lead to jail time. All instances of driving without insurance can lead to increases in your insurance premiums in the future when you apply for a policy.

    [Read: Caught Driving With No Car Insurance? Here’s What It’ll Cost You ]

    If you are caught driving without car insurance because you are involved in an accident, your consequences can become more severe. Rather than a small chance of a warning or a smaller fine, you are much more likely to have your car impounded, and you are likely to have your license suspended. What’s more is that at-fault drivers with no insurance become financially liable for a large variety of costs, especially if the other person in the accident carries none or very little uninsured motorist coverage. You could be forced to pay a large sum or declare bankruptcy.

    You may get some reprieve because other motorists carry coverage for underinsured or uninsured motorists. Still, given the high costs of medical bills and car repair, it’s unlikely to cover everything.

    How much car insurance is required?

    There are a few different aspects of the minimum coverage in each state. Nearly every state will require you to carry some bodily injury liability and property damage liability coverage since those two costs tend to be present in an accident. Most mandated state minimum insurance coverage is abbreviated to a set of three numbers like 25/50/25. The first number is the maximum payout for a single person’s bodily injury in an accident. The second number is the maximum for all individuals harmed per accident. And the third number is the maximum payout for property damage.

    Some states structure their minimum coverage to require personal injury protection, where each motorist files with their insurance for damages and medical expenses rather than assigning one motorist as at fault – these states are known as “no-fault states.” Other states have mandatory underinsured or uninsured motorist coverages.

    StateMinimum Car Insurance Requirement
    Alabama25/50/25
    Alaska50/100/25
    Arizona15/30/10
    Arkansas25/50/25
    California15/30/5
    Colorado25/50/15
    Connecticut25/50/20
    Delaware25/50/10
    Florida10/20/10
    Georgia25/50/25
    Hawaii20/40/10
    Idaho 25/50/15
    Illinois25/50/20
    Indiana25/50/25
    Iowa20/40/15
    Kansas25/50/25
    Kentucky25/50/25
    Louisiana15/30/25
    Maine50/100/25
    Massachusetts20/40/5
    Michigan20/40/10
    Minnesota30/60/10
    Mississippi25/50/25
    Missouri25/50/25
    Montana25/50/20
    Nebraska25/50/25
    Nevada25/50/20
    New Hampshire25/50/25, financial responsibility only
    New Jersey15/30/5
    New Mexico25/50/10
    New York25/50/10
    North Carolina30/60/25
    North Dakota25/50/25
    Ohio25/50/25
    Oklahoma25/50/25
    Oregon25/50/20
    Pennsylvania15/30/5
    Rhode Island25/50/25
    South Carolina25/50/25
    South Dakota25/50/25
    Tennessee25/50/15
    Texas30/60/25
    Utah25/65/15
    Vermont25/50/20
    Virginia25/50/20
    Washington25/50/10
    Washington D.C. 25/50/10
    West Virginia25/50/25
    Wisconsin25/50/10
    Wyoming25/50/20

    Source: Insurance Information Institute

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Laura Leavitt

    Contributing Finance Writer

    Laura Leavitt is a writer and teacher in Ohio. She has written personal finance stories for Business Insider, The Billfold, The Financial Diet, and more.

    Reviewed by

    • Nashalie Addarich
      Nashalie Addarich
      Insurance Editor

      Nasha Addarich is an editor at The Simple Dollar and a former attorney who specializes in home insurance, auto insurance, life insurance, and savings. She is a former contributing editor to Reviews.com.