State Requirements for Car Insurance

In the U.S. traffic law and insurance regulations are the domain of state government rather than federal. Specifically in the area of car insurance, that means state requirements are different as you move from one jurisdiction to the next. What might be required in South Dakota may be different than what New Hampshire requires, for example.

In order to make sure you are in compliance with your state laws, you need to know what’s required of you. Every state except Iowa requires drivers to do something, in terms of insurance, prior to registering a vehicle and driving on public roads. There are several different options employed by the various states:

  • liability insurance
  • making a cash deposit with the government
  • posting a surety or real estate bond
  • self insuring

Some states only allow a single option while others allow multiple options. Again, you’ll need to check with your state DMV or insurance department to find out what’s required where you live.

Understanding Liability Insurance

Since most of us will fulfill the requirements of the law by purchasing a car insurance policy, it’s important to understand what liability insurance is. This type of insurance is a policy that pays for damage you cause to someone else’s property, or injuries you inflict on other people.

The key to liability insurance lies in the term “liability.” The term describes something you are responsible for; it describes a debt you owe. For example, if you go to the grocery store to buy a gallon of milk you owe the cashier a certain amount of money before you leave the store. That is your “liability.”

Liability insurance does not pay to replace your vehicle or cover your own medical expenses after an accident. Collision insurance pays for your car while your health insurance pays your medical bills.

Understanding Liability Limits

Lastly, when you purchase liability insurance it comes with limits. For example, if the limits on bodily injury for a single accident are $25,000, that’s all the insurance company will pay to the victim of a single accident. Any other additional expenses would have to be covered out-of-pocket by the driver.

Liability amounts are expressed in a three digit format representing different amounts, in tens of thousands of dollars, covering bodily injury, death, and property damage. Using Alaska as an example, their liability limits are expressed as 50/100/25. Those numbers represent:

  • $50,000 for bodily injury or death to a single victim
  • $100,000 for bodily injury or death to multiple victims
  • $25,000 to cover property damage

Below is a list of all 50 states along with their individual liability limits. Keep in mind that these numbers are subject to change at any time.

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