Compulsory Insurance
What Does Compulsory Insurance Mean?
Compulsory insurance is coverage that individuals, businesses, or other entities are legally required to maintain.
This type of insurance typically covers perils that can result in significant financial costs. It is often designed to protect the insured from financial ruin, ensure compensation for victims without burdening the state, or both.
Those required to purchase compulsory insurance but who fail to do so may face penalties, such as fines.
Insuranceopedia Explains Compulsory Insurance
Auto insurance is one of the most common types of compulsory insurance. Drivers in North America are generally required to have auto insurance while operating a vehicle. This ensures that if they cause bodily injury or property damage while driving, their insurance policy will compensate the victims, even if the driver cannot afford the damages out of pocket.
Some commercial lines of insurance are also compulsory. In most states, businesses with at least one employee must carry workers’ compensation insurance, although there are exceptions—such as requiring three or more employees in Arkansas and five or more employees in Mississippi. Like auto insurance, workers’ compensation is mandated to ensure that victims (in this case, those affected by occupational injuries and illnesses) receive adequate compensation, regardless of the company’s available funds.
