Motor Vehicle Insurance
The laws of United States ask for strict vehicle financial responsibility requirements. Buying a motor vehicle insurance policy is an example of this. The law does not require comprehensive or collision insurance but liability insurance only. The main purpose of liability insurance is to work as a protection against any injuries or damages caused by traffic collisions. Liability insurance is not concerned with identifying a guilty party but provides financial responsibility for any physical injuries to the passengers or damages to the vehicles involved in an accident irrespective of who is at fault. Liability insurance holder compensates anyone but him/herself in case of property damage or personal injury.

What is considered as financial responsibility?
If we take the example of California, it is not just motor vehicle liability insurance policy which qualifies as an example of financial responsibility. Some of the following may also pass as acceptable examples of financial responsibility:

• A surety bond worth $35,000 from a company licensed to do business in California
• A DMV issued self-insurance certificate
• A cash deposit of $35,000 with DMV

What is liability insurance for?
The main purpose of buying liability insurance is to protect oneself from the risks of liabilities imposed by lawsuits. The policyholder by buying liability insurance buys protection from an assortment of lawsuits against him/her that may come out of a traffic accident in which he/she may or may not be the guilty party. The party which is being compensated does not need to be a party to the insurance policy since liability insurances provides protection against third party insurance claims. What the liability insurance coverage may not cover is intentionally caused damages and contractual liabilities. In short, the insured party or the policyholder does not get compensated but the other party to the accident does get compensated.
Mandatory requirements
As mentioned above, vehicle laws make it mandatory that the driver of a car keeps his/her evidence of financial responsibility with him/her at all times. Evidence of financial responsibility must be presented to a law enforcement officer especially when a vehicle is involved in a traffic accident. Such evidence will also be required during the renewal of vehicle registration.

Minimum liability insurance requirements
Since only liability insurance is required, therefore the laws have clearly outlined what the liability insurance must cover. For example in case of California, it must cover:

• $5,000 for damage to property
• $30,000 for death or injury to more than one person
• $15,000 for death or injury to one person

How does a policyholder notify DMV that his/her vehicle is insured?
Since 2006, insurance companies are legally bound to electronically notify DMV of their clients. This means that DMV gets its information directly from the insurance companies rather than the policyholders; policyholders do not need to notify DMV. It knows when a motor vehicle’s insurance expires and takes the appropriate action under the law against the policyholder. Electronic notification is for privately owned vehicles only; insurance companies do not electronically notify DMV for vehicles covered by business or commercial insurance policies.

DMV may suspend vehicle registration under the following circumstances:

• When vehicle registration is obtained by showing false evidence of insurance.
• Insurance information is not notified to DMV within the stipulated time (30 days) after the transfer of ownership or issuance of a registration card upon initial registration.
• When insurance companies notify DMV that a policyholder has canceled his/her motor vehicle policy and has not bought new policy within 45 days.

It is important to note that vehicle law may vary according to the state. Vehicle owners are advised to comply with their specific state laws.