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What Is Compulsory Insurance?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 September 2014
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    Conjecture Corporation
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Compulsory insurance is any type of insurance coverage that is required by law before individuals or businesses may engage in certain activities. The idea behind this type of mandatory coverage is to protect the well-being of those who would otherwise be adversely affected if the events covered in the terms of the policies were to take place. From this perspective, the requirement of compulsory insurance is intended to protect the interests of everyone concerned, including those who carry the insurance since doing so can often make it possible to avoid the cost of a lengthy litigation.

One of the most common examples of compulsory insurance today is the requirement by law to secure and maintain auto insurance. In many nations around the world, drivers must provide proof of insurance when renewing an operator’s license or attempting to secure a tag or title for a motor vehicle. Proof of insurance must also be tendered to law enforcement officials upon request. Failure to maintain auto insurance can lead to severe fines and in some cases additional charges that lead to time spent in jail.

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Along with auto insurance, the laws of many nations require that companies maintain certain types of compulsory insurance as part of their ongoing operational expenses. Worker’s compensation is one example of compulsory health insurance that many companies must carry, even if they do not provide group health coverage benefits for their employees. Disability insurance is another example of compulsory heath insurance that is required in many jurisdictions, providing employees who are disabled either permanently or for an extended period of time to claim benefits that aid in maintaining an equitable standard of living in lieu of wages or salaries.

It is not unusual for companies to also be required by law to maintain some type of liability coverage. This form of compulsory insurance is normally aimed at protecting customers and others from losses that occur due to the negligence of the insured party. For example, if a visitor to a construction site is injured during that visit, the liability coverage purchased by the builder would provide benefits that would help allay medical and any other covered expenses associated with that injury.

The range and type of compulsory insurance coverage that is required will vary from one jurisdiction to another. Even within a nation, some states or provinces may not require compulsory auto insurance of private citizens, while requiring businesses to maintain a certain amount of auto coverage. For this reason, individuals and businesses should take the time to consult with authorities, determine both the type and level of coverage that must be maintained in order to comply with local laws, then take the steps necessary to secure that coverage.

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Post 1

It's rarely a good idea for the government to pass legislation that costs people a lot of money, but requiring people to have at least liability insurance before they can get a driver's license or renew their car tags is great policy. There is one problem -- some sneaky folks have figured out that they can simply get around having to maintain insurance by purchasing a policy when it's time to renew their tags or licenses, cancel the policy after they get what they want and repeat that process yearly.

That's a loophole that needs to be closed in states where that is a problem. Sure, there are fines for driving around without auto insurance, but that's little comfort should an uninsured driver ram into your car and leave it up to you and your insurance company to repair the damage.

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