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Compulsory insurance, also called mandatory insurance, refers to any coverage required by national law before a person or business can perform certain activities, such as driving a vehicle or providing a certain type of service. This type of insurance is designed to ensure that all parties are insured or financially responsible if they are adversely affected by an event covered by the policy and cause injury or damage to a third party.
How does compulsory insurance work?
Insurance regulations are adopted at the national level. This means that each state determines not only what type of insurance its residents must purchase, but also the minimum coverage that policyholders must purchase. Of course, policyholders can purchase more coverage if they decide the minimum is too low for their needs. In many cases, states require an annual insurance certificate to verify that the mandatory insurance requirements have been met. For example, vehicle owners are generally required to present a valid motor vehicle identification card to the Secretary of State’s office when renewing license plates. Some of the more well-known types of mandatory insurance include auto liability insurance, workers’ compensation insurance, and professional liability insurance.
Car liability insurance
Auto liability insurance provides financial protection to drivers who cause damage to others or their own property while driving. Two aspects of this type of coverage are bodily injury and property damage protection, and most states require drivers to have minimum limits for both. Exactly how this works depends on whether you live in a liability coverage state or a no-fault coverage state, which also legally requires drivers to have personal injury protection (PIP).
Workers Compensation Insurance
Workers’ compensation policies allow employers to pay medical bills and death benefits for employees who are injured, ill, or die on the job. This type of insurance often covers lost wages as well. It can also be combined with employer’s liability insurance.
Professional liability insurance
Some states require certain professions, such as doctors and lawyers, to carry professional indemnity insurance. This type of coverage protects these professionals from any liability arising from malpractice, bad advice, or providing false information that results in physical injury to the patient or financial loss to the client. For healthcare professionals, this type of coverage is called malpractice insurance. Other professional occupations may also have professional indemnity insurance, but may not be required by law.
What is not covered by compulsory insurance?
Each policy type will have specific coverage exclusions related to the losses it protects. However, most policies exclude intentional damage and losses resulting from the policyholder’s participation in criminal activity. Please contact your insurance company or agent for more information on what your policy does not cover. Who needs compulsory insurance? Most states require everyone who drives a car (individuals and businesses) to purchase auto insurance to protect others on the road. Businesses must also have workers’ compensation coverage, regardless of industry. Other types of liability insurance, such as general liability insurance or professional liability insurance, may be mandatory or optional depending on the country and industry. Because state regulations regarding mandatory insurance vary, it’s important to speak with an experienced insurance agent or broker who understands the laws in your state. Additionally, comparing insurance rates can help you secure the best policy terms.
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