Financial Responsibility Clause

AAA

DEFINITION of 'Financial Responsibility Clause'

A provision within an automobile insurance policy which indicates that the policy holder has the minimum amount of coverage required by the state that he or she is driving in. Financial responsibility clauses are used to ensure that the driver has the coverage specified by the financial responsibility laws.

INVESTOPEDIA EXPLAINS 'Financial Responsibility Clause'

Because different states may have different minimum coverage requirements, financial responsibility clauses reduce ambiguity by stating the policy holder always meets that requirement. For example, a driver is required to have at least $20,000 in liability coverage in the state that his car is registered in. While on a business trip, the driver passes through a state with a higher requirement: $30,000. Because the driver's policy has a financial liability clause, as soon as the driver enters the state with a higher requirement, his coverage moves from $20,000 to $30,000.

RELATED TERMS
  1. Adequacy Of Coverage

    The adequacy of coverage concerns how well your insurance policies ...
  2. Auto Insurance

    A policy purchased by vehicle owners to mitigate costs associated ...
  3. Risk

    The chance that an investment's actual return will be different ...
  4. Deductible

    1. The amount you have to pay out-of-pocket for expenses before ...
  5. Insurance

    A contract (policy) in which an individual or entity receives ...
  6. Provision

    A legal clause or condition contained within a contract that ...
Related Articles
  1. Options & Futures

    Beginner's Guide To Auto Insurance

  2. Options & Futures

    Top Tips For Cheaper, Better Car Insurance

  3. Insurance

    The True Cost Of Owning A Car

  4. Insurance

    Do You Need Casualty Insurance?

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center