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When Did Car Insurance Become Mandatory?

Obviously car insurance only came into existence once cars were invented. The first car was invented in 1886. The first recorded car insurance policy was sold in 1898 by Travelers Insurance to a doctor who wanted to insure his horse and buggy. However, cars were only purchased by the extremely wealthy for the first 20 years. For a more modern reference, think of when flat-screen TVs were introduced to the market in 1997. According to LA Times, the average price of a TV in 1999 ranged from $11,000-$25,000! Twenty years later, you can purchase a flat-screen TV for less than 5% of the initial cost.

The cost of a car dramatically dropped once the famous Ford Model T became the first mass-produced car in 1913. In 1908, The Model T cost $850. By 1925, as assembly-line production improved, the cost dropped to $300. Despite generating only 20 horsepower, the Ford Model T’s top speed was 40-45 miles per hour! Car insurance requirements today differ greatly from state to state. However, car insurance has always been enforced differently from state to state. And car insurance regulations are based on state laws, not federal laws. There is no mandatory requirement for car insurance by the federal government. 

Estimate shows the Model T comprised as much as 40 percent of all cars sold in the United States in the early 1920’s. As the Model T became more affordable, more Americans were able to purchase a car. Connecticut and Massachusetts were the first states to establish some type of mandatory car insurance. Connecticut’s 1925 financial responsibility law required any vehicle owner involved in a collision with damages over $100 to prove “financial responsibility to satisfy any claim for damages, by reason of personal injury, to, or death of, any person, of at least $10,000.” This early financial responsibility requirement only required vehicle owners to prove financial responsibility after their first collision. According to the U.S. General Accounting Office, Massachusetts introduced the most standard type of car insurance we use today in 1927. They required automotive liability insurance as a prerequisite to vehicle registration.

Car Insurance Isn’t Mandatory In Every State!?

Yes, you read that right! Even after nearly 100 years, some states still do not require car insurance! However, these states do require some type of protection. Massachusetts’ unique requirement still holds as an individual can either deposit $10,000 in cash, stocks, or bonds with the State Treasurer who will then issue a receipt or obtain a motor vehicle liability bond equal to the state minimum limits. Mississippi and Arizona have a similar option through the State Treasurer. However, the Grand Canyon State requires a deposit of $40,000! 

But that’s not the highest; Texas allows you to establish financial responsibility through a surety bond or a deposit of $55,000! Typically, small business owners are the most common surety bond users as they rather pay out of pocket for an at-fault accident. Now if purchasing car insurance or depositing tens of thousands to a State Treasurer isn’t for you…there’s only one state left for you. 

New Hampshire! According to New Hampshire’s DMV website, “New Hampshire is not a mandatory or compulsory insurance state. Proof of insurance may be required as the result of a conviction, crash involvement, or administrative action.” Now the same website strongly recommends and urges to carry insurance BUT as long as you’re not at fault for an accident you can drive without insurance in New Hampshire! And when you think about it, it makes sense for New Hampshire to be the only state considering their state motto is “Live Free or Die.”