Insurance Mythbusters: #1: You have to buy insurance – it’s the law! (BUSTED- Until now…)
Insurance, similar to other financial products like stocks, bonds, or annuities, has almost always been an optional purchase. No law has really ever obligated anyone in the United States to purchase insurance (until the Affordable Care Act). In fact, that’s what some of the hubbub surrounding the ACA included: it’s really the first time the purchase of insurance was “mandated” by law.
“An applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month.” - 26 U.S. CODE § 5000A - REQUIREMENT TO MAINTAIN MINIMUM ESSENTIAL COVERAGE
Surprisingly, up until now, there’d been quite a bit of freedom in the U.S. about your right to buy or not buy insurance. Contrary to many other state and federal governmental programs, most of the states believe its good public policy to simply want people to be able to be responsible for their own actions.
“But what about car insurance?” you may ask. Simply put, most states actually have “financial responsibility laws” that only require a driver who is out on the roads to prove that he or she is able to pay for damages to other people’s property or the bodily injury that they cause. Clearly, the easiest way to comply with those requirements is to purchase an auto liability insurance policy that meets the states requirements, but most states have other ways for you to prove you are responsible. Some states allow you to post a bond, or show that you’re capable financially of being able to come up with $50,000-$100,000 to pay for those injuries. Not everyone can set that kind of money aside, so insurance companies can give you the financial responsibility to pay for those types of claims.
This is true for your personal auto as well as for commercial truckers and automobile fleets. The Federal Government and US States only want you to be able to prove that you or your business have assets in place to help pay for damages to other people’s property and injury to their bodies. With commercial vehicles, there are requirements to be able to pay to clean up pollution and spills from what you’re carrying, as well as proof that you are financially responsible to the people for whom you are transporting goods. Again, in most circumstances, insurance policies are the most cost effective way to satisfy these requirements. There are optional solutions available; they just may not be as financially appealing to you or your business.
Many states note that they require businesses to have Worker’s Compensation insurance, but also often offer an option for a company to prove that they can afford to pay the employee’s workers compensation benefits. Your state may require you to be financially responsible for injuries to your employees if you run a business, and like with auto, workers compensation insurance is usually the easiest form of satisfying that requirement. Some larger businesses are able to demonstrate a financial ability to pay for those claims without insurance, but generally, the cost is simply prohibitive to most operations.
At the end of the day, it’s very seldom that there’s a law that you have to buy insurance.
Don’t be mistaken: there are many other instances in which you may find yourself required to purchase insurance, but those are mostly requirements of other businesses for doing business with you. Your mortgage company may require you to carry property insurance on the home or building they’ve lent you money to buy. Another client may wish for you to show you carry General Liability insurance for you to work with them. Your leasing company may require you to carry physical damage coverage on your car, but these are definitely not “laws” requiring insurance.