Why Is Car Insurance Mandatory?

Car insurance is required by law nearly everywhere in the United States — but as insurance premiums climb, it’s easy to question why drivers are required to invest in coverage. Mandatory car insurance laws first appeared in the 1920s to combat the rising cost of car accidents and incentivize safe driving. Today, with the cost of healthcare and vehicle repairs climbing, car insurance is mandatory in all states except New Hampshire. This prevents drivers from being left with the unmanageable out-of-pocket costs that can result from collisions, and helps limit the amount of accident-related litigation that states have to deal with.

Why is car insurance required?

Car insurance is required in order to provide financial protection for drivers involved in motor vehicle accidents. Liability insurance, the key requirement of most states’ auto insurance laws, offers financial protection to both the at-fault and not-at-fault parties. This ensures injuries and property damage can usually be covered through private insurance, helping prevent costly lawsuits.

Auto insurance transfers the financial cost of motor vehicle crashes from individuals to insurance companies. If you’re hit by another driver and require either medical care or vehicle repairs, the other driver’s liability insurance is typically what pays for your injuries and damages. Likewise, if you cause damage to another party’s property or injury to others with your vehicle, your liability insurance will cover their medical expenses, lost wages and vehicle damages – up to your policy’s limits. Without insurance, either the at-fault party or the injured driver would end up paying the resulting costs out of pocket.

Has car insurance always been mandatory?

Car insurance wasn’t always a legal requirement in the U.S. While Travelers is noted to have written the first automobile insurance policy as early as 1897, car insurance wasn’t a common purchase for Americans in the early 20th century — and it wasn’t required in most states until after World War II.

Auto insurance wasn’t initially mandatory because so few Americans owned motor vehicles. But as the Roaring Twenties hit and the car craze filled city streets with Model Ts and Studebakers, state governments faced a serious problem: crashes were costing Americans money, and nobody wanted to foot the bill.

• Car insurance law history
  

  In 1923, the U.S. motor vehicle fatality rate peaked at 21.65 deaths per 100,000,000 vehicle miles traveled (VMT). Two years later, lawmakers in two New England states passed the first mandatory car insurance laws. Massachusetts passed the first true mandatory auto insurance law in 1925, requiring all drivers to purchase bodily injury liability insurance with limits of at least $5,000 per person and $10,000 per accident. Without that insurance, the new law stated, no driver could register their motor vehicle — and if they were caught driving without insurance, they could be fined between $100 and $500 or spend up to a year in prison.

  The same year, Connecticut passed a similar law titled “An act concerning financial responsibility for damages caused by the operation of motor vehicles.” But this law didn’t require auto insurance for all drivers — only those convicted of reckless driving, drunk driving or a hit-and-run offense had to prove their financial responsibility, up to $10,000 for injuries and deaths and $1,000 for property damage.

  These two approaches to mandatory car insurance — a blanket requirement for all drivers and a targeted mandate for the most high-risk individuals — provided the model for other states. New Hampshire and New York followed the Connecticut model in the 1930s and 1940s, passing financial responsibility laws that required high-risk drivers to purchase insurance or prove their financial assets in another way.

  But in the wake of World War II, the insurance problem became urgent as cars moved from the periphery of American life to the central place they hold today. Suburbs blossomed with Fords and Chevys; Congress authorized $25 billion for the construction of an interstate highway system; and between 1946 and 1966, road deaths surged by over 58 percent, according to data from the National Safety Council.

  In 1956, New York passed a law requiring car insurance for all state residents. The following year, North Carolina followed suit. By the 1970s, every state had a motor vehicle financial responsibility law in place — and only a few states, like New Hampshire, offered a loophole for safe drivers to drive insurance-free.

  As of July 2024, Virginia became the most recent state to require auto insurance for all drivers in order to register a motor vehicle.

Where is car insurance required?

Today, all states have minimum car insurance requirements, which typically mandate some amount of liability coverage, with some states requiring personal injury protection (PIP), uninsured and underinsured motorist coverage (UM/UIM) and/or medical payments in addition to the minimum liability requirements. Familiarizing yourself with your auto insurance coverage requirements can help you prepare in advance for what coverage types you will need when it’s time to set up your insurance policy.

In all states except New Hampshire, the state’s minimum auto insurance requirements apply to all drivers. In New Hampshire, individuals convicted of certain driving violations must prove their financial responsibility by purchasing insurance, but most drivers technically have the option to drive without insurance. In order to drive sans insurance, drivers must prove “financial responsibility.” This means proof that they could pay the equivalent of a minimum coverage policy — or: $25,000 because of bodily injury or death to one person, $50,000 because of bodily injury to two or more people in any one accident, and $25,000 because of injury to or destruction of property — through a deposit with the state treasurer.

The easiest and most affordable way to meet financial responsibility requirements in NH is still purchasing an auto insurance policy. In that sense, while New Hampshire is technically not a mandatory car insurance state, car insurance is still a de facto requirement for most drivers. In fact, a 2022 study by the Insurance Research Council found that New Hampshire has the fifth-lowest rate of uninsured drivers of any state, with just 7.8 percent of the population driving without car insurance.

How much does mandatory car insurance cost?

How much your state’s mandatory car insurance costs will vary by state and other factors. However, the national average cost of car insurance for drivers with only state minimum insurance is $806 per year, or about $67 per month, as of September 2025.

That’s just the average, though. In general, various rating factors may impact the cost of car insurance for drivers across the nation:

• State regulations: New York, a no-fault state, has the highest average rates for mandatory insurance at $144 per month. By contrast, Maine’s average minimum coverage rate is just $35 per month.
• Age: In most states, insurance companies use driver age as a metric of road risk and charge more for young drivers. Mandatory coverage costs 25-year-old drivers an average of $985 per year, compared to $806 per year for drivers in their 40s.
• Driving record: A single moving violation could raise your rates for mandatory insurance. A driver with a speeding ticket conviction pays an average of 22 percent more per year for minimum coverage at $983; a driver with a single DUI pays over 100 percent more at $1,617.
• Credit history: In all states except California, Hawaii, Massachusetts and Michigan, where credit is prohibited as a rating factor, drivers with poor credit pay significantly more for even minimum coverage — an average of $1,409 per year, 75 percent more than drivers with good credit.

While your personal risk factors may be outside your control, comparing rates for mandatory auto insurance between various carriers can help most drivers find a lower rate.

What if I drive without the required car insurance?

In states that require car insurance for all drivers, driving without proof of an active insurance policy could land you in serious legal and financial trouble. Penalties for driving without insurance vary between states, but they typically include fines, imprisonment and the suspension of vehicle registration and/or driving privileges.

• Fines: In some states, like North Carolina or California, you could be fined as little as $100 for driving without insurance. However, a $500 fine is more common, and some states, like Hawaii, have fines as high as $5,000 for a first offense.
• Imprisonment: Not all states impose jail time for driving uninsured, but in some states such as Colorado, you could be imprisoned for up to a year.
• Suspension of license and registration: In nearly every state, you can expect to lose your driving privileges — and possibly your vehicle registration — if you’re caught driving without insurance. Reinstating your license and registration typically comes with fees.
• SR-22 insurance requirements: In many states, a conviction for driving without insurance means you’ll need to maintain an SR-22 certificate proving your financial responsibility for at least three years with your state’s DMV. Your insurance company will file this document — but not all insurers work with SR-22s, and the cost of coverage may go up significantly.

These penalties are often more severe if you’re caught without insurance in an accident — particularly if you contributed to injuries or deaths. And on top of the legal consequences of your decision to drive uninsured, you can expect higher insurance premiums following a coverage lapse. According to data from Quadrant Information Services, mandatory car insurance typically costs around 14 percent more following a coverage lapse.

Frequently asked questions

• When do I need to insure a vehicle?
  

  In all states except New Hampshire, you’ll need an active auto insurance policy before you can register a vehicle. When you’re buying a new car, you may be afforded a short grace period, where insurance on a previous vehicle can apply to your new car for a few weeks. After that, you’ll need to insure the new car with its own policy. Speak with a licensed insurance agent about your unique situation to further understand your car insurance requirements.

• Should I shop my car insurance rates?
  

  It’s always a good idea to shop around to find the best car insurance rates on the coverage you need. Rates can vary widely from one company to the next, so the only way to know if you’re getting the best deal is to compare quotes for the same amount and types of coverage from different carriers. Getting car insurance quotes from several companies can help you determine which company offers the best value for the cheapest price. You can also find out which companies offer the coverage you need and which discounts you may qualify for.

• How do I save on auto insurance?
  

  One way to save on your car insurance premiums is to shop around and compare multiple carriers, which helps you find the lowest rates for the coverage you need. Another method is to review all possible discounts since most carriers offer a wide range of additional savings. Common discounts include lower rates for bundling home and car insurance, safe driver discounts, telematics program discounts and price cuts for paying your annual premium all at once. You should also check to see if your employer offers any group discounts with a particular insurance company.

• What happens if I do not carry the minimum amount of insurance?
  

  The consequences of getting caught driving without insurance coverage vary from state to state. Typically, steep fines are involved, along with license suspensions and even possible jail time. Driving without insurance also puts you at extreme financial risk should you be at fault for an accident.

Methodology

Bankrate utilizes Quadrant Information Services to analyze September 2025 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Rates are weighted based on the population density in each geographic region. Quoted rates are based on a single, 40-year-old male and female driver with a clean driving record, good credit and the following full coverage limits:

• $100,000 bodily injury liability per person
• $300,000 bodily injury liability per accident
• $50,000 property damage liability per accident
• $100,000 uninsured motorist bodily injury per person
• $300,000 uninsured motorist bodily injury per accident
• $500 collision deductible
• $500 comprehensive deductible

To determine minimum coverage limits, Bankrate used minimum coverage that meets each state’s requirements. Our base profile drivers own a 2023 Toyota Camry, commute five days a week and drive 12,000 miles annually. Bundling and paperless billing discounts are applied. 

These are sample rates and should only be used for comparative purposes. Your quotes will differ.

If otherwise specified, the base profile has been modified with the following driver characteristics: 

• Credit-based insurance scores
  

  Rates were calculated based on the following insurance credit tiers assigned to our drivers: “poor, average, good (base) and excellent.” Insurance credit tiers factor in your official credit scores but are not dependent on that variable alone. Four states prohibit or limit the use of credit as a rating factor in determining auto insurance rates: California, Hawaii, Massachusetts and Michigan.

• Incidents
  

  Rates were calculated by evaluating our base profile with the following incidents applied: clean record (base), at-fault accident, single speeding ticket, single DUI conviction and lapse in coverage.

• Mileage
  

  Rates were calculated by evaluating our base profile with the following differences in mileage: 2K, 5K, 12K (base), 15K and 20K.

• Model
  

  Unless otherwise stated, rates are for 2023 vehicle models. For new vs. used vehicles, we included the following year in our calculations: 2013.

• Age
  

  Rates were calculated by evaluating our base profile with the ages 18-70 (base: 40 years) applied. Depending on age, drivers may be a renter or homeowner. Age is not a contributing rating factor in Hawaii and Massachusetts due to state regulations. For teen drivers, rates were determined by adding a 16- or 17-year-old teen to their 40-year-old married parents’ policy. The rates displayed reflect the total cost of a driver this age added to their parents’ policy.

• Gender
  

  The following states do not use gender as a determining factor in calculating premiums: California, Hawaii, Massachusetts, Michigan, North Carolina, Pennsylvania.

• Status
  

  Rates were evaluated based on the following marital/family status: single (base), married, 40-year-old married man and woman. Marital status is not a rating factor in Hawaii and Massachusetts.