State laws or lenders require people and businesses to buy certain types of insurance. Most states require Automobile Liability insurance on all registered vehicles. If the vehicles are financed, lenders often require owners to carry Collision and Fire coverage.
Employers must carry Workers Compensation in most states. Mortgage lenders require borrowers to insure their buildings against loss by fire and other perils. In certain areas at high risk of flooding, lenders might require Flood insurance as well.
However, many kinds of insurance are not required by anyone. In Texas, for example, employers can opt out of buying Workers Compensation coverage. Although nearly all businesses use computer networks, no laws or lenders require them to buy insurance against damage to their systems or damages others might suffer because of a problem with their networks.
State laws do not require employers to carry Employment Practices Liability coverage. Lenders normally do not require people who live in low-risk flood zones to buy Flood coverage. No laws require businesses to buy Umbrella policies, which provide additional liability insurance above standard Liability and Auto policies.
Some types of insurance can also be difficult to get in certain areas, and specialized coverages may be limited. For information about liability-focused personal coverage options, see Comprehensive Personal Liability. For examples of specialized professional policies, see Toxicologists Insurance.
The reasons for passing on non-mandatory insurance are compelling. Although the future occurrence of a loss is uncertain, the cost of an insurance premium is not. Insurance can cost significant amounts of money that many people would rather put to other uses.
There are good reasons for buying insurance even if it's not required. Many of these policies cover jury awards in injury and damage cases, and those awards can be substantial. Consider the following awards that would likely be covered by Employment Practices Liability insurance:
Employment practices jury awards
- A jury awarded $934,000 in damages to a deaf man fired by the convenience store that employed him.
- An Alabama man who was fired after complaining about his employer to the federal Equal Employment Opportunity Commission was awarded $314,000.
- A jury ordered an employer to pay $900,000 to a Cleveland woman for discriminating against her because of her age.
Umbrella policies would come in handy in situations like these:
Examples where umbrella coverage helps
- A woman who suffered injuries when she fell in a store was awarded $3.2 million.
- A jury awarded $11.7 million to an elevator mechanic who was injured while working on a construction site.
People and businesses who think they don't need Flood insurance might want to reconsider. Floods can result from melting snow and water main breaks as well as rainfall. According to federal estimates, people outside of high-risk areas file a significant share of Flood insurance claims and receive a notable portion of disaster assistance for flooding.
One inch of floodwater in a 2,000 square foot home can cause thousands of dollars in damage. For these reasons, it is wise to at least consider buying insurance that no one requires.
One of our professional insurance agents can answer questions and help you weigh the costs and benefits of buying extra coverage; talk to an agent. Going without insurance can be a very costly mistake. Just because it's not required doesn't mean you shouldn't buy it.
Frequently Asked Questions
Do lenders always require flood insurance?
Lenders typically require flood insurance only when a property is in a high-risk flood zone or if the loan terms demand it.
Can an employer avoid Workers Compensation coverage?
Some states allow employers to opt out of state Workers Compensation systems, but this varies by jurisdiction and carries financial risks.
When should a business consider umbrella insurance?
Businesses should consider umbrella insurance when their liability exposure could exceed the limits of standard policies, especially after large jury awards.
Is flood damage covered by a standard homeowners policy?
No, standard homeowners policies typically exclude flood damage; a separate flood policy is required.