When did car insurance become mandatory?

The mandatory requirement for car insurance isn't a federal law but is set by each state. Massachusetts was the first state to make insurance mandatory in 1927.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: May 28, 2020

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Here's what you need to know...

  • The mandatory requirement for car insurance is not a federal regulation
  • In some states, drivers are not legally required to carry an insurance policy if they can demonstrate they are financially able
  • Without car insurance, you would have to pay for all the damages you caused out of your own pocket

For most of us who own cars in the U.S., there is a legal requirement to have our vehicles insured.

So the question of when did car insurance become mandatory is irrelevant in a legal sense, although it is a fun little fact to know. The answer to the question, however, really isn’t concrete.

It depends on how we define insurance and what state we’re talking about.

The mandatory requirement for car insurance is not a federal regulation. Rather, it is mandated by the individual states which all have their own rules regarding how insurance applies to different vehicles and drivers.

The system under which car insurance is mandated is set up the way it is because the federal government, constitutionally speaking, cannot force any citizen to buy a specific product or service.

When necessary, that’s the domain of the states.

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The Birth of Car Insurance

Before the introduction of the automobile in the late 19th century, the most common form of individual transportation was the horse and buggy.

Believe it or not, insurance companies were writing policies for buggy owners to protect them financially under a variety of circumstances, including accidents.

These policies were not wildly popular among the average citizen but, nonetheless, they were available.

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When was auto insurance created?

The historical record indicates that the first car insurance policy was written for a physician in 1898 to cover his first automobile. Because cars were brand-new to both insurance companies and the general population, writing such a policy was a virtual unknown.

As the story goes, that first car insurance policy was written using a form originally published for horse and buggy insurance. As automobiles became more popular, insurance companies realized a whole new market for their products.

According to the U.S. General Accounting Office, the first instance of mandatory car insurance occurred in the state of Massachusetts in 1927.

Other states followed their lead and gradually, car insurance became mandatory in most. Keep in mind that what was mandated by law back then is quite different from what’s mandated today.

Car insurance has since evolved to provide coverage for so much more.

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Is car insurance mandatory in all 50 states?

Depending on the specific resources you read, some contend that car insurance is not a legal requirement in all 50 states. Technically, that’s true.

In some states, drivers are not legally required to carry an insurance policy if they can demonstrate the financial means to cover the minimum amounts for bodily injury and property damage liability required in that state.

For example, let’s say the minimum coverage in one of these non-mandatory states is set at the following levels:

  • $25K for the coverage of injuries to one person
  • $50K for the total injuries of more than one person
  • $10K for the damage to property

This requirement is referred to as 25/50/10 coverage.

A driver who could prove that he had the money to pay these amounts out of pocket, in the event of an accident, could be free from the requirement to purchase auto insurance.

Practically speaking, however, mandatory car insurance is a different matter.

While it’s true that a driver could escape the car insurance requirement in some states, the fact that he has the financial means also makes him a prime target for a hefty lawsuit.

Lawsuits based on car accidents can go into the tens of millions of dollars when it comes to jury awards, and a driver’s homeowners insurance policy will not cover such an award.

Yet even without the tort law component, if a driver must demonstrate the financial means to cover a potential accident, he is essentially declaring himself to be self-insured. Practically speaking, he has not avoided the legal requirement to have some sort of coverage.

Auto Financing

Another component to the question of when did car insurance become mandatory lies in the relationship between car buyers and those financing the purchase.

When a bank loans you money to purchase a car, it places a lien on the title of that car as long as you owe money on the loan. With that in mind, consider what would happen to the bank’s interest in your vehicle if you should have an accident and total the car.

As a result, lending institutions mandate that car owners provide proof of insurance.

Failure to do so will result in a forced place policy which the bank purchases and passes along to you in your monthly payments. One way or the other, car insurance is mandatory with the bank and you will pay for it.

If an auto policy is mandatory in your state, enter your ZIP code now to find the best available car insurance rates.

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