When Did Auto Insurance Become Mandatory?

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Insurance Q&A: “When did auto insurance become mandatory?”

The answer depends on whether we’re talking about liability insurance or physical damage insurance.

Every state has some form of mandatory minimum liability auto insurance in place to ensure drivers on our public roadways are capable of indemnifying, or paying back, one another in the event they’re found liable for an accident.

Liability limits are set by individual state departments of insurance and must be adhered to by any insurance company choosing to offer policies in that particular state.

In other words, the insurance company has to offer at least that amount to every driver in the state.

Long story short, the first mandatory liability insurance law went into effect in 1927 in the state of Massachusetts, though it’s important to recognize that insurance, in some form or another, has been around for thousands of years.

Insurance for physical damage, on the other hand, usually depends on whether or not you own the item in question outright.

If you own your car, home, boat, or whatever else free and clear, meaning there’s no lien holder on it, you’re not required to have physical damage coverage.

For example, if you’ve got a loan on a car or house, the financial institution you owe money (lienholder) will likely force you to carry insurance for potential damages as part of the contract.

Think of it this way. If you borrowed $20,000 to buy a car and it was totaled in a wreck, what motivation would you have to pay back the balance if an insurance company didn’t replace it?

To sum it up, liability is mandatory for automobiles because of state laws, and physical damage is usually only made mandatory by lenders for items you still owe money on (or items you do not want to have to repurchase with your own money if they’re damaged/destroyed).

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