Liability auto insurance is required in all states. Benefits are provided

Liability auto insurance is required in all states. Benefits are provided under a fault or no-fault system. Under the "fault" system, the insurance company pays benefits based on whose fault the accident was, whereas "no-fault", benefits are paid regardless of who is at fault for the incidence.
In both cases, states make sure that car owners and drivers have the required liability insurance by:
  • Financial responsibility/security laws, or
  • Compulsory insurance

Financial Responsibility/Security Laws

Ownership of motor vehicles became more popular in the early 1900's, but there was no insurance for them yet. As ownership became more widespread, some states realized the need to cover owners if someone was hit by a driver and they didn't have enough money or assets to recover costs. Who was supposed to pay the injured party's damages - especially medical bills?
This problem was initially solved through financial responsibility/security laws. These are still used today although the statutes have somewhat changed.
The basic idea is if a driver caused an accident resulting in an injury or death of another person, he was required to show proof of financial responsibility. That is, proof that the he could pay any judgment against him for damages to the other person or party. If the driver couldn't, his license could be suspended or revoked. Also, the driver would have to provide some type of security - financial or property - to guarantee payment to the injured person.
Over time, this became more and more difficult to administer, especially to determine what type of security was needed and why a driver's license could be revoked and for how long. These laws aren't widely used today for these reasons.

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