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What is Proof of Financial Responsibility? And Why It Matters

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Updated November 15th, 2020

Written by
Maurice Draine
Former Agent

Within the auto insurance world, proof of financial responsibility refers to a person’s capability to cover the monetary damages racked up by a car accident.

If you have an at-fault automobile accident with another motor vehicle and damages or injuries were to occur. You would be required to cover the expenses for both.

Because of this, the majority of states need a legal driver to carry proof of financial responsibility for public safety. 

Otherwise, they can get a license suspension and wouldn’t be allowed to operate the motor vehicle. 

Below are the four types of available financial responsibility:

 Where to purchase?
Auto Insurance CoverageFrom an insurer to get minimum liability coverage required by your state.
Cash DepositDeposit of minimum coverage with your local DMV. Normally, at least $50,000.
Surety BondPurchase a surety bond to cover damages, in the event of an accident. Normally, a $50,000 bond.
Real Estate Bond/Government BondPurchase bond to cover minimum requirements. Normally, at least $50,000.

Proof of Financial Responsibility – Insurance

The most common way to show financial responsibility is by carrying auto insurance.

You should keep your proof of insurance handy, whether in your car, wallet, or phone. 

You have guaranteed minimum liability coverage by buying insurance, which would cover the other vehicle’s damages, just not your own.

Liability coverages would also pay the medical bills of any person that was injured in the other car.

If a driver is on the highway with no proof of insurance, there is a good chance that they have no way to pay the costs of an accident.

Therefore, they cannot legally drive the uninsured automobile; their motor vehicle operating privilege is technically revoked. 

Below is the minimum car insurance requirements by state.

Most states require financially responsible drivers to carry bodily injury and property damage liability.

While other states require liability coverage plus personal injury protection (PIP) and uninsured and/or underinsured motorist coverage (UM & UIM).

A few states require medical payments coverage (MedPay).

If you prefer not to obtain automobile coverage, you can opt to pay the minimum bond amount to DMV. 

StateMinimum Liability Coverage Policies Required*Minimum Bond**
Alabama25/50/25BI + PD Liability$50,000
Alaska50/100/25BI + PD Liability$50,000
Arizona15/30/10BI + PD Liability$40,000
Arkansas25/50/25BI + PD Liability, PIP1.5 times the appraised value of the vehicle.
California15/30/5BI + PD Liability$35,000
Colorado25/50/15BI + PD Liability$35,000
Connecticut25/50/20BI + PD Liability, UM, UIM$50,000
Delaware25/50/10BI + PD Liability, PIP$40,000
District of Columbia25/50/10BI + PD Liability, UM$25,000
Florida10/20/10BI + PD Liability, PIP$25,000
Georgia25/50/25BI + PD Liability2 times the appraised value of the vehicle.
Hawaii20/40/10BI + PD Liability, PIPn/a
Idaho25/50/15BI + PD Liability$50,000
Illinois25/50/20BI + PD Liability, UM, UIM1.5 times the appraised value of the vehicle.
Indiana25/50/25BI + PD Liability$40,000
Iowa20/40/15BI + PD Liability$55,000
Kansas25/50/25BI + PD Liability, PIPn/a
Kentucky25/50/25BI + PD Liability, PIP, UM, UIM$25,000
Louisiana15/30/25BI + PD Liability$55,000
Maine50/100/25BI + PD Liability, UM, UIM, MedPay$127,000
Maryland30/60/15BI + PD Liability, PIP, UM, UIM$75,000
Massachusetts20/40/5BI + PD Liability, PIP$10,000
Michigan20/40/10BI + PD Liability, PIP2 times the appraised value of the vehicle.
Minnesota30/60/10BI + PD Liability, PIP, UM, UIM1.5 times the appraised value of the vehicle.
Mississippi25/50/25BI + PD Liability$15,000
Missouri25/50/25BI + PD Liability, UM$60,000
Montana25/50/20BI + PD Liability$55,000
Nebraska25/50/25BI + PD Liability, UM, UIM$75,000
Nevada25/50/20BI + PD Liability1.5 times the appraised value of the vehicle.
New Hampshire25/50/25BI + PD Liability, UM, MedPay1.5 times the appraised value of the vehicle.
New Jersey15/30/5BI + PD Liability, PIP, UM, UIMn/a
New Mexico25/50/10BI + PD Liability$60,000
New York25/50/10BI + PD Liability, PIP, UM, UIM$25,000
North Carolina30/60/25BI + PD Liability, UM, UIM$85,000
North Dakota25/50/25BI + PD Liability, PIP, UM, UIM$10,000
Ohio25/50/25BI + PD Liability$30,000
Oklahoma25/50/25BI + PD Liability$75,000
Oregon25/50/20BI + PD Liability, PIP, UM, UIMn/a
Pennsylvania15/30/5BI + PD Liability, PIP, MedPay$25,000
Rhode Island25/50/25BI + PD Liability$75,000
South Carolina25/50/25BI + PD Liability, UM, UIM$35,000
South Dakota25/50/25BI + PD Liability, UM, UIM$25,000
Tennessee25/50/15BI + PD Liability$65,000
Texas30/60/25BI + PD Liability, PIP$55,000
Utah25/65/15BI + PD Liability, PIP$160,000
Vermont25/50/10BI & PD Liab, UM, UIM$115,000
Virginia25/50/20BI + PD Liability, UM, UIM$50,000
Washington25/50/10BI + PD Liability$60,000
West Virginia25/50/25BI + PD Liability, UM, UIM$25,000
Wisconsin25/50/10BI + PD Liability, UM, MedPay$60,000
Wyoming25/50/20BI + PD Liability$25,000

*BI = Bodily Injury, PD = Property Damage, PIP = Personal Injury Protection, UM = Uninsured Motorist Coverage, UIM = Underinsured Motorists Coverage, MedPay = Medical Payments Coverage.

**Automobile owners can forgo insurance coverage from a liability insurer and pay a bond with the State’s Department of Motor Vehicles (DMV) to maintain motor vehicle liability laws.

There are other states, however, where you can prove your financial responsibility in different ways.

Other Methods Besides Auto Insurance

Cash Deposit: Your local DMV may allow you to make a security deposit to them, which will be your proof or “self-insurance certificate.” 

For instance, if you made a $35,000 security deposit and then in an accident, you would use that $35,000 to pay for damages and injuries for the other people in the collision.

Surety Bond: You can obtain a surety bond through a business. In the event of an accident, that company would cover the financial cost of damages and injuries inflicted upon the other party within the accident.

If you choose to carry a surety bond rather than car insurance, most states require the said bond’s value to be between $25,000 to $50,000.

Real Estate Bond/Government Bond: By carrying a real estate or government bond with the state, you are ensuring that you have the financial capability of paying for auto liability damages.

These bonds’ value must meet the minimum liability coverage requirement for your state to be considered adequate to cover expenses in an at-fault automobile accident.

Rule 10

When applying for a driver’s license, most states follow a set of rules to approve your application for motor vehicle liability requirements and compliance with the county bureau’s records.  

Rule 10 is the rule that specifies the requirement of financial responsibility and/or insurance.

Before your license can be issued or renewed, the applicant must show or file evidence of financial obligation for liability reasons.

The risk of bodily injury and motor vehicular damages while driving requires each legal motorist to pay their liability should an accident happen.

The applicant must prove auto insurance or financial responsibility within 60 days of their license being issued.

If they fail to do so, the application can be declined or revoked.

SR-22 Certificates & FR-44 Certificates

Several states require SR-22 and FR-44 documents for responsible drivers, both of which prove financial responsibility.

If you are a high-risk driver, your state may ask that you obtain an SR-22 certificate.

Failure to do so, you wouldn’t be able to operate your motor vehicle. 

A high-risk driver has had accidents, multiple tickets, traffic violations, DUI conviction, lapsed car insurance, or other penalties. 

An SR-22 and an FR-44 are promises of liability coverage; however, they are not actual insurance.

These documents prove that you meet the state’s minimum liability insurance guidelines, but they do not replace the need for comprehensive or collision coverage.

How to File Proof of Insurance

To obtain a license from your local DMV, you will need to file proof of insurance.

This paperwork proves that you have the liability requirements that are needed.

If you carry traditional auto insurance, you will need to show your documentation or identification card provided by your insurance carrier.

Largest insurers by market share.The most common way to get proof is to buy motor vehicle insurance from an insurer. The top insurers are listed above by market share—source: S&P Global Market Intelligence based on direct written premiums in 2019.

If you have opted to carry a security deposit with your DMV, they will give you an authorized letter.

If you have a surety bond or a bond with the state, you’ll need an official document of proof to provide the DMV.

The DMV is not the only time you’ll be required to show your proof of responsibility.

If you are ever in a collision or pulled over by law enforcement, they will ask to see your insurance card or proper documentation.

Authorized Insurance Providers

When thinking of auto insurance providers, you’ll likely think of the names you’ve heard the most often, perhaps the ones with the catchy commercials.

However, it would be best if you shopped around before purchasing car insurance.

Finding an insurance policy that fits your needs and budget may take a few consultations with experienced insurance professionals.

Still, the right insurance policy will give you peace of mind whenever you get behind the wheel.

The top 10 most commonly used insurance companies with the average percent of American drivers that they insure are:

– State Farm – 16.12%

– Geico – 13.76%

Progressive – 12.24%

– Allstate – 9.32%

USAA – 6.01%

– Liberty Mutual – 4.62%

– Farmers Insurance – 4.15%

– Nationwide – 2.46%

– American Family Insurance – 2.28%

Travelers – 1.93%

It should be noted that popular doesn’t necessarily mean better.

There are also local insurance agencies in your area that may offer you better insurance policy coverages and discounts.

Frequently Asked Questions

What Does it Mean to Show Proof of Financial Responsibility?

If you were renewing your license or were pulled over by law enforcement, you will be asked to prove financial responsibility.

Showing this proof lets the DMV or officer know that you’re capable of paying accidental damages or injuries that you’re held liable for.

What is Proof of Financial Responsibility?

This could be your auto insurance card. It could be a document given to you by the DMV stating that you carry a security deposit with them for your liability coverage.

You could also show a state-issued record displaying that you own bonds worth the amount of required liability coverage.

How Does Someone Show Proof of Responsibility?

When asked or applying for license renewal, the driver will provide an insurance card or documentation, proving that they have enough money in bonds or in DMV security deposits to cover liability costs.

What is Financial Responsibility?

Financial responsibility means that you agree to be held liable for accidental damages or injuries due to an auto accident.

Financial responsibility does not pertain to the costs of damages to your motor vehicle or your physical injuries.

When Am I Required to Provide?

When you take a trip to the DMV for license distribution or renewal, you’ll be asked for your proof of financial responsibility.

You will also be asked to present it in the case of an accident or if you are pulled over.

How to Prove Financial Responsibility in Your State

To learn what your specific state requires as proof of financial responsibility, you will need to contact your local DMV.

They will be able to provide you with your state’s guidelines on proper documentation.

How Financial Responsibility Law Works

Financial responsibility laws are put in place by states to ensure that the party responsible could afford to pay the damages or injuries to the other party involved in an accident.

By providing proof of financial responsibility, you agree to maintain that status at all times while driving. And keep your driving privileges. 

What is an SR-22 Certificate?

An SR-22 certificate is given out by an auto insurance company to prove that you hold the minimum liability coverage required to drive within your state legally.

These are usually given out when someone cannot qualify for standard insurance policies.

SR-22 certificates are not actual insurance, just proof of liability coverage.

What is Car Insurance, “Financial Responsibility” Law?

Car insurance “financial responsibility” law requires that you carry proof that you can pay damages you’re held liable for after a car accident.

Typically, you need to have this proof by the time of registration for a car or when you renew or apply for a driver’s license.

Are There Alternatives to Car Insurance?

If you do not want to carry car insurance, there are several other options available to you.

You can pay a security deposit to the DMV for the amount of minimum liability coverage.

Therefore, that money can be used if you’re in an accident.

You may also hold bonds with the government that can also prove you have financial responsibility.

Both of these options come with documentation to show financial responsibility upon request.

To learn more about how to get proper documentation, contact our experts today.

Our licensed professionals will be happy to answer any questions you have.

References

https://law.justia.com/title9/article25/chapter5/

https://www.dmv.ca.gov/portal/driver-education-and-safety/dmv-safety-guidelines-actions/financial-responsibility-insurance/

https://www.iiat.org/resources/am/laws-regulations/operations-practices/financial-responsibility#.X6Q9wGhKjIV

https://www.cyberdriveillinois.com/SR-22-uninsured-crashes/finressr22.html

Maurice Draine

Maurice Draine

Maurice, a former licensed P&C insurance agent with a 4-year degree in journalism. He resides in Minneapolis and has worked as a technical writer for UnitedHealthcare and Wells Fargo, where he created Medicare-related policies and procedures for three years. He is also an editor for AutoInsureSavings.org. Editorial Guidelines

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