All states have laws in place that require vehicle owners to have the ability to meet a minimum standard for being able to pay for any injuries or property damage they may cause as a result of a crash. These laws generally fall into three broad categories:

• Financial Responsibility Laws
• Compulsory Auto Insurance Laws
• No-Fault Laws

Financial Responsibility Laws - require proof that a vehicle owner can pay minimum amounts to others for bodily injury or property damage that they are liable for due to a vehicle crash. The requirements are usually expressed in terms of minimum amounts for payment of:

• Injury or death to an individual person in an accident
• Injury or death to multiple persons in an accident
• Damage to property of others

As an example, you will frequently see these limits expressed in the form of $50/100/25. What this example means is that the law requires at least $50,000 per accident for bodily injury or death to one person, $100,000 per accident if more than one person is injured or killed and $25,000 per accident for damage to the property of others. These financial responsibility limits vary widely from state-to-state. The one thing that is consistent in the states that have this type of law is that they are enforced after an accident or conviction for a traffic violation occurs. This means that the proof that the financial responsibility exists is not required until after an accident or offense occurs.

Compulsory Auto Insurance Laws - operate in conjunction with Financial Responsibility Laws in some states and make it illegal for a vehicle owner to operate a vehicle without first having proof of their ability to pay for amounts they are found liable for to others as a result of a vehicle crash. In these states, the law requires that the proof of financial responsibility be provided at the time the vehicle is registered.

In the introduction, we referred to the type of insurance that provides coverage for this type of loss as liability insurance. An automobile insurance policy providing liability insurance coverage is the most frequently used method of showing proof of meeting financial responsibility and compulsory auto insurance laws. However, there are alternative methods, such as making a deposit of cash or securities and posting a bond, another form of insurance.

You probably noticed that all of these requirements are not for your protection or to repair your vehicle in the event of a crash. These laws are intended to protect others, frequently referred to as third-parties, which you might become liable to for their injuries or damage to their property. There is, however, one variation to vehicle insurance laws in a few states, (i.e., Michigan), that you may need to understand if you live in one of those states. These laws are referred to as No-Fault Laws.

No-Fault Laws - require that each person collects from his/her own insurance company regardless of who is liable for the injuries caused by the crash. It is not normally required that lawsuits be filed to determine who is liable or at fault for the crash. There is a dollar amount or a verbal description of the type of serious injuries that once exceeded allows the injured person to file a lawsuit. The concept in No-Fault states is that, in return for giving up the right to sue in all but the most serious crashes, injured persons are promptly paid for their injuries by their own insurance company. The No-Fault laws vary widely from state-to-state in terms of where they establish the threshold for allowing lawsuits.

A Word About Financing or Leasing - in addition the requirements for auto insurance that are found in state laws, if you finance or lease a vehicle there may be additional insurance requirements. The company you finance or lease a vehicle from will require that you maintain insurance coverage throughout the term of the loan or lease agreement that protects your vehicle in the event of damage to it from collision, theft and other types of damage to your vehicle. Also, if you lease a vehicle, the lease agreement will require liability insurance that protects you for any injuries to others and damage to others property. The lease agreement requirements for liability insurance are frequently higher than the minimum financial responsibility limits set by state law. The financing or leasing company will also require you to identify them on the policy. If your agent or insurance company is not familiar with the requirements of the financing or leasing company, contact the auto dealership, financing or leasing company. You will be required to show proof of the insurance coverage before or at the time you take delivery of the vehicle. So, to save time and effort later or to prevent delay in taking delivery of your vehicle, you may want to make certain you have this information in advance.