Car insurance is a way to protect yourself against financial loss in case of an automobile accident. It functions as a way to pay to repair or replace your automobile, cover the costs of an injury to you or a third party, or to compensate individuals financially for lost wages, personal property or pain and suffering. Over the years, most states have passed mandatory automobile insurance laws. The reasoning behind this is that if everyone who drives a car is required to carry insurance, car insurance rates could stay low. This would lessen the burden on the government, who generally assumes payment responsibility for those that cannot afford insurance.

A typical policy might indicate coverage this way: 25/50/25. If you're in an accident and have this type of coverage, your insurance company will pay a maximum of $25,000 for bodily injury to a single person, $50,000 maximum for bodily injury to all persons in the accident and a maximum of $25,000 for property damage. In addition, other specific coverage types are available or may be mandatory. A PIP policy is a separate personal injury rider that cover things like pain and suffering to a third party. No-fault (NF) means that no matter who is to blame for the accident, your insurance is required to pay for damages. An uninsured motorist (UM) rider covers you if you are involved in an accident and the motorist at fault has no car insurance coverage.

Car insurance requirements vary from state to state. Some states require high insurance coverage, NF, UM, and PIP while other states require bare minimums. In states where car insurance is not mandatory, motorists must prove that they have a minimum of assets to cover costs in case of an accident. New York has the greatest car insurance requirements. A motorist must carry a minimum of 25/50/25 plus NF, UM, and PIP. In addition, the state of New York requires a 50/100 policy rider that covers wrongful death. Other states boasting high car insurance requirements include: Minnesota 30/60/10, PIP, NF, UM; Kansas 25/50/10, PIP, NF, UM; North Dakota 25/50/10, PIP, NF, UM; Massachusetts 20/40/5, PIP, NF, UM; Alaska 50/100/25, PIP, NF, UM; and Maine (2) 50/100/25, PIP, NF, UM.

Having strict automobile insurance requirements does not necessarily translate into cheap car insurance rates. While North Dakota has the cheapest premiums combined with some of the strictest requirements, New York premiums are the fourth highest. Obviously, many other factors must apply.