Compulsory Insurance
Insurance coverage that is required by law, regulation, or contract. Common examples include auto liability insurance for drivers and workers' compensation insurance for employers.
Example
“Before registering his new car, Marcus had to purchase compulsory insurance to meet his state's minimum liability requirements.”
Memory Tip
Think 'COMPEL' - Compulsory insurance COMPELs you to buy it because it's the law.
Why It Matters
Understanding compulsory insurance helps you avoid legal penalties, fines, and potential lawsuits. Failing to maintain required coverage can result in license suspension, vehicle impoundment, or personal liability for damages that could reach hundreds of thousands of dollars.
Common Misconception
Many people think compulsory insurance covers all their potential losses or provides adequate protection. In reality, mandatory minimums often provide only basic coverage that may not fully protect your assets in a serious accident or claim.
In Practice
In California, drivers must carry minimum liability coverage of $15,000 per person for bodily injury, $30,000 per accident for bodily injury, and $5,000 for property damage. If Sarah causes an accident resulting in $50,000 in medical bills for another driver, her minimum compulsory insurance would only cover $15,000, leaving her personally liable for the remaining $35,000. This is why many drivers purchase coverage above the compulsory minimums.
Etymology
From Latin 'compulsus' meaning 'driven together' or 'forced,' combined with 'insurance.' The term emerged in the early 20th century as governments began mandating certain types of coverage.
Common Misspellings
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Related Terms
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See Also
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