Financial Responsibility Clause

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.

BREAKING DOWN '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. Distribution Clause

    An insurance policy provision which determines how the coverage ...
  2. Coordination Of Coverage

    A review or modification of an individual's or business’ insurance ...
  3. Coincidental Excess Coverage

    Insurance coverage that provides excess coverage for a specified ...
  4. Valuation Clause

    A provision in certain insurance policies that specifies the ...
  5. Reinstatement Clause

    An insurance policy clause that states when coverage terms are ...
  6. Contingency Clause

    A contract provision that requires a specific event or action ...
Related Articles
  1. Insurance

    How Much Car Insurance Do I Need?

    Find out to determine how much car insurance you actually need with this overview of the different types of coverage available in your policy.
  2. Home & Auto

    Filling The Gaps In General Liability Insurance

    Standard liability coverage may not be enough. Special needs call for specialized policies.
  3. Options & Futures

    For Top-Notch Insurance Coverage, Compare Quotes

    Find out how to use and compare policy options to get the best coverage at the best price.
  4. Home & Auto

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  5. Professionals

    Homeowner Endorsements and Auto Insurance

    Homeowner Endorsements and Auto Insurance
  6. Insurance

    Group Term Life Insurance: What You Need to Know

    Is group term life insurance really a good deal? What you need to know about employer-sponsored group term life insurance coverage.
  7. Professionals

    Personal Auto Insurance Policies

    Personal Auto Insurance Policies
  8. Insurance

    Millennials Guide: Picking the Right Car Insurance

    Millennials fall into the category of high car-insurance rates. Check out some of the ways to save money, like owning an older car or leasing a vehicle.
  9. Your Clients

    Now Is the Time to Check In on Clients' Insurance

    Insurance forms the foundation of many financial plans, and you need to make sure that your clients’ coverage is kept up-to-date.
  10. Savings

    4 Reasons Why Waiting To Buy Life Insurance Is a Bad Idea

    Understand the benefits of applying for and securing life insurance coverage while you are young and healthy, and learn the cost of waiting to get coverage.
RELATED FAQS
  1. What is a good interest coverage ratio?

    Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's ... Read Answer >>
  2. Which types of coverage ratios should I look at when deciding to invest in a company?

    Find out why coverage ratios are useful for investors to know and which three coverage ratios an investor should understand ... Read Answer >>
  3. What's the difference between the coverage ratio and the liquidity coverage ratio?

    Understand the difference between coverage ratios and the liquidity coverage ratio and why the liquidity coverage ratio rule ... Read Answer >>
  4. Can your insurance company drop you after an accident?

    Learn how auto accidents can lead to insurance premium increases or policy cancellations, and why high-risk drivers are more ... Read Answer >>
  5. Does renters insurance cover dog bites?

    Learn how a renters insurance policy can provide liability coverage for dog bites and how coverage may vary by state and ... Read Answer >>
  6. Does renters insurance cover pet damage?

    Understand the potential snags when it comes to renting a place as a pet owner, and become wiser when it comes to liability ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center