What is mandatory insurance?

Mandatory insurance is any type of insurance coverage required by law before individuals or companies can 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 under the policies occurred. From this perspective, the mandatory insurance requirement aims to protect the interests of all stakeholders, including those who are insured, as this can often avoid the cost of lengthy litigation.

One of the most common examples of mandatory insurance today is the legal requirement to insure and maintain auto insurance. In many countries around the world, drivers are required to present proof of insurance when renewing a driver's license or attempting to obtain a tag or title for a motor vehicle. Proof of insurance must also be presented to law enforcement upon request. Failure to maintain auto insurance can result in hefty fines and, in some cases, additional charges that lead to imprisonment.

Along with auto insurance, the laws of many nations require companies to maintain certain types of mandatory insurance as part of their ongoing operating expenses. Workers' compensation is an example of mandatory health insurance that many companies are required to have, even if they do not provide group health coverage benefits to their employees. Disability insurance is another example of mandatory health insurance that is required in many jurisdictions as it offers employees who are permanently or for an extended period of time disabled to claim benefits that help maintain an equitable standard of living, rather than wages or salaries.

It is not uncommon for companies to also be required by law to maintain some form of liability coverage. This form of compulsory insurance is normally intended to protect customers and third parties from losses that occur through the negligence of the insured. For example, if a visitor to a construction site is injured during such a visit, the liability coverage purchased by the builder would provide benefits that would help mitigate the medical expenses and other coverage associated with that injury.

The scope and type of mandatory insurance coverage required varies by jurisdiction. Even within a nation, some states or provinces may not require mandatory auto insurance for private citizens, requiring companies to maintain a certain amount of auto coverage. For this reason, individuals and businesses should take the time to consult with authorities, determine the type and level of coverage that must be maintained to comply with local laws, and then take the necessary steps to ensure that coverage.