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Car insurance for third party liabilities

Why is liability insurance mandatory?

In all but three states, you will commit an offense if you drive a vehicle on the public roads without a basic liability insurance policy in place. In the early days, only the rich could afford to buy their own transport. As the price dropped, more vehicles came on to the road and the question arose, who should pay the medical expenses for those injured and for the repairs of damaged vehicles. The law of tort says the one at fault pays. But what happens if he or she has not enough money? The answer is mandatory cover to ensure there is always some money to pay for treatment and repairs.

What are the mandatory limits?

For the most part, the minimum amounts were set decades ago and they have not kept place with inflation. So although the coverage was sufficient to pay for most medical treatment and repairs, that is no longer the case today. Even where states have reviewed these minimum figures, they are still insufficient to cover the losses in most accidents. Hence because more drivers now duck buying any insurance or only have the minimum amounts, there is a growing market for people to buy uninsured and underinsured cover.

Why do people drive uninsured?

For a small percentage, this is a point of principle. They refuse to accept the idea they should be forced to carry insurance. But most of the uninsured actually cannot afford the coverage. As the recession took hold and unemployment rose, families found they could not balance their budget. Since driving was essential and policing is not particularly effective, many people decided to risk driving without insurance. The national average is that about 18% of all drivers on the road are uninsured. This has an ironic effect. The more drivers refuse to buy policies, the smaller the remaining pool of drivers to share the losses. This forces up the premium rates for those who still pay. If every driver actually paid, it would bring down the rates for everyone.

No-fault distinguished

A small number of states prefer to use a no-fault car insurance approach. Instead of using tort as the basis for deciding who should pay, your own insurance company pays out when you claim no matter which driver was at fault. This has the big advantage of avoiding all the potential litigation and the delays in arguing who was to blame.