The History of Automobile Insurance
Auto insurance is a means for vehicle owners to protect themselves against damages and injuries caused by auto accidents. Without it, drivers could be faced with financial catastrophe caused by large medical bills and significant property damage. Depending on the state, certain automobile insurance coverages are required to be carried by law.
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Concept
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The concept of auto insurance is rooted in the history of insurance in general, which was first developed as a way for mariners to protect against the loss of damage to their cargo. In about 3,000 B.C., the Chinese began to spread cargo among several ships to minimize the risk of losing it all. Eventually, the concept of insurance developed from this same principle by spreading the risk of claims among all policyholders.
Origin
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Auto insurance dates back to the late 1800s and coincides with the invention of the automobile. After the auto started becoming a popular item, it also became apparent that there would need to be a method of protecting vehicle operators, passengers and property owners against damages resulting from auto accidents.
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First Policy
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In 1898, the first auto policy was issued by the Travelers Insurance Company. The policy was a liability-only policy, meaning that it only paid for damages and injuries caused by the insured, but offered no coverage for the insured's own vehicle or injuries. The premium was $11.25, and provided coverage amounts between $5,000 and $10,000.
Mandatory Coverage
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Beginning in mid-1920s, auto insurance coverage became mandatory in Massachusetts, making it the first state to do so. At about the same time, more stringent driving laws began to be enacted and the federal government started to provide funds for road improvement and construction. By the end of World War II, many more states had followed the example of Massachusetts and made car insurance compulsory.
Modern Day
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As of 2009, auto liability insurance is mandatory in all states. Drivers are required to have with them proof of financial responsibility provided by their insurance company. States also require that certain limits of liability insurance are maintained, and penalties for not carrying insurance can be severe. In most states, additional coverages such as uninsured and underinsured protection also are required.
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