No Fault Insurance: What You Need to Know

Even if you live in a state that requires no fault insurance, you may not completely understand what no fault insurance is, and how it differs from traditional, standard liability (torte) car insurance systems. And if you are relocating to a state that requires no fault insurance, you may even have more difficulty understanding the changes in liability.

Before you purchase a new no fault insurance policy, be sure you understand what no fault insurance is, and understand your state’s specific requirements and your personal needs.

What Is No Fault Insurance?

Currently, 10 U.S. states require no fault insurance (Florida, Hawaii, Kansas, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota and Utah). Three other regions allow you to select no fault insurance as an option: Washington, D.C., Kentucky and Pennsylvania.

Under the standard liability insurance system, the ability to recover damages is based upon “provable negligence” – the ability to prove who was at fault for your accident. However, under the no fault insurance system, your ability to recover damages from other drivers if an accident occurs is limited. To compensate for this limitation, you are required to purchase no fault insurance. In the event of an accident, your insurance company pays your damages (up to your policy limits), regardless of whom is at fault. Other drivers are covered by their insurance policies.

A pure no fault system would completely cover you in the event of an accident, as well as prohibit you from ever suing another driver. In the U.S., no state uses a pure no fault insurance system. Instead, no fault states use a combination of a no fault insurance and standard liability insurance systems. This means that under certain conditions, lawsuits are permitted.

In most no fault states, drivers can still be held financially responsible for an accident damages if injuries reach a predefined level of severity. For example, there may be a dollar amount threshold for medical bills that must be met before a lawsuit can be file. Or the law may verbally state a broad definition of what type of severe and serious injuries - like death, dismemberment and disfiguration - qualify for torte action.

That’s why it’s important to have liability coverage even if you live in a no fault insurance state.

About Your No Fault Insurance Policy: Personal Injury Protection

Personal injury protection (PIP) is the piece of your car insurance policy that pertains to no fault coverage. Due to state laws, the specifics of personal injury protection vary from state to state. PIP often covers expenses your medical insurance does not, such as co-pays and lost wages – and sometimes even replacement costs (your expense to do something you would normally do yourself). Keep in mind that PIP insurance is not designed to replace your personal medical insurance.

In addition, no fault insurance has no effect on the damages for the automobiles involved in your accident. The insurance companies will still determine liability. If you are at fault and do not have car insurance, both the no fault insurance company and medical insurer can file a lawsuit against you to recover damages. And if you are at fault and don’t have collision car insurance coverage, you’ll still be responsible for repairing your own car.

No fault insurance was designed to protect drivers by providing everyone with medical coverage, as well as reduce legal and administrative costs associated with insurance claims. Under the standard liability insurance system, victims can be left unable to obtain appropriate medical coverage, and physicians may be unable to recover their fees, while parties sort out liability. Ideally, this would reduce car insurance premiums. However, remaining liability issues often cause no fault insurance premiums to be higher than standard liability car insurance premiums.

Shopping for No Fault Insurance

Before you purchase a no fault insurance policy:

• Understand your state’s specific rule, requirements and regulations.

• Create a personal auto insurance profile – a list of the vehicles you own and their safety features, the driving records of anyone using them, where they are driven, and where you live, what you can afford in a premium, and the assets you need to protect

• Compare rates. Talk to several agents to determine what policy offers you the best protection, as well as car insurance premium.