What is Financial Responsibility Law
Financial responsibility law is a regulation that requires an individual or business to prove that they are able to pay for damages resulting from an accident. A financial responsibility law does not specifically require the individual to have insurance coverage. Instead, the law requires the individual or business to be able to demonstrate the financial capacity to pay, even if they are not at fault. This type of law is commonly associated with automobiles.
BREAKING DOWN Financial Responsibility Law
Financial responsibility laws exist because not all states have a compulsory insurance law. Many states consider an individual with an insurance policy to be compliant with a financial responsibility law. This is because most insurance policies have a minimum coverage that meets the state standard.
Depending on the state, a surety bond can serve as an alternative to insurance coverage to satisfy financial responsibility laws. Some states will hold a cash deposit from the vehicle owner in lieu of requiring insurance. A business that maintains a fleet of vehicles operated by employees might be allowed to self-insure in order to comply with financial responsibility laws. The self-insurance option is typically not made available to individuals.
In Virginia, it is possible for an individual to pay an uninsured motor vehicle fee of $500 at the time of vehicle registration. This does not remove financial responsibility from the owner if there is an accident with the vehicle. It also doesn't provide them with any form of insurance coverage. Virginia’s uninsured motor vehicle fee is valid for 12 months.
Instances When Financial Responsibility Laws Can Be Enforced
Evidence of compliance with financial responsibility laws can be demanded by authorities for a variety of reasons. Proof can be required after an accident has occurred, by police during traffic stops not related to accidents, when registering a vehicle, and when seeking the reinstatement of a driver’s license that was revoked or suspended.
Failure to provide proof of compliance with the law can lead to penalties such as fines to the operator of the vehicle, the suspension of the operator’s license, and the suspension of the vehicle’s registration. This could also affect future attempts to procure auto insurance. Insurers might increase the rates they charge an individual who failed to comply with financial responsibility laws.
Lack of compliance with these laws can put other assets, such as a home, at risk if the vehicle owner does not have the financial resources to pay for damages that stem from accidents they are held liable for.