Proof Of Financial Responsibility
It's an odd phrase, isn't it?
Proof of financial responsibility could mean that you manage your paychecks properly, understand how to balance a checkbook, or don't blow all your disposable cash on lottery tickets.
But, when your state refers to proof of financial responsibility in regards to motor vehicles, it means that you can provide evidence that shows you're capable of handing the monetary consequences of owning or driving a vehicle.
Or, in simpler language, that you have the basic resources to pay for the damages you might cause with your car.
How to Provide Proof of Financial Responsibility
The most common way to show your state you're financially responsible is by having a car insurance policy.
In almost all states, this means you must carry two types of liability insurance: bodily injury and property damage. As the names imply, bodily injury covers human injuries and property damage covers vehicles. You must meet your state's minimum liability insurance requirements.
Keep in mind many states also require additional types of insurance coverages, such as uninsured or underinsured driver protection.
However, many states allow their drivers to prove financial responsibility in other ways. Some examples include:
- Posting a surety bond with your state.
- Keeping a cash deposit with your state.
- Filing a government bond with your state.
Consult your state's DMV to see what other financial responsibility options exist for you.
When to Show Proof of Financial Responsibility
This varies by state, but it's common to have to provide evidence of your financial responsibility when applying for or renewing a vehicle registration and when you're stopped for a traffic infraction or involved in a car accident.
What Happens if You Don't Maintain Financial Responsibility?
Again, this differs by state, but it usually results in a license and vehicle registration suspension and can sometimes also mean a fine.
Don't assume that just because you meet your state's financial responsibility laws that you have adequate financial protection. Most states have low minimum requirements. If you cause a moderate or severe accident, you could easily exceed the state-mandated financial responsibility limits, and devastate your savings.
Contact your car insurance company to see how much it would cost to increase your liability coverage; if the price seems too high, shop around and compare insurance quotes from other providers until you find one that meets your budget needs.