Legal Definitions - financial-responsibility clause

A financial-responsibility clause is a provision found in automobile insurance policies. It states that the insured person has the minimum amount of liability insurance coverage required by the state's financial-responsibility law.

For example, if a state requires drivers to have at least $25,000 in liability insurance coverage, the financial-responsibility clause in an insurance policy would state that the insured person has at least $25,000 in coverage.

This clause is important because it ensures that drivers have the minimum amount of insurance required by law to cover any damages or injuries they may cause in an accident. Without this clause, drivers may not have enough insurance to cover the costs of an accident, which could result in financial hardship for both the driver and any other parties involved.