What is no-fault insurance?

no-fault insurance states

The controversial no-fault insurance system is required in a handful of states and optional in several others. Since the adoption of this system in the 1970s, no-fault insurance has become questionable because of flaws in the system. But with many states still having some form of no-fault insurance in place, it's important to understand what that means. Find out what, exactly, no-fault insurance is and if your state has no-fault laws.

The no-fault insurance system explained

No-fault insurance is a car insurance coverage, called personal injury protection (PIP), required for all drivers in certain states. States that require this coverage are called no-fault states. With no-fault insurance, each driver injured in an accident is responsible for his or her own medical expenses — and those of their passengers — resulting from the accident, no matter who is at fault in the accident. Drivers in no-fault states can’t sue other drivers to get payment for injuries from an accident in most cases, unless injuries exceed a threshold specified by the state.

With no-fault insurance, all parties involved in a car accident must file a claim with their own insurance company to get medical compensation. This is different from states that don’t have no-fault insurance because compensation for medical expenses from accidents for those drivers depends on who is found at fault for the accident.

Of the 12 no-fault states, three states are choice no-fault states. This means that the default coverage is no-fault insurance, but drivers do have the ability to reject it and maintain full tort rights (the right to sue for injuries after an accident). If you reject no-fault insurance in a choice no-fault state, your rates will likely be higher.

There are 10 other states, plus Washington, D.C., that require or offer PIP, but aren’t considered true no-fault states. These states require or have optional PIP coverage for drivers to get compensation for medical expenses from their own insurance company, but these states don’t limit their drivers’ rights to sue. These states are considered add-on states. There are two variations of add-on states: one requires drivers to carry PIP but they are able to reject the coverage in writing and the others make PIP truly optional.

No-fault states

State No-fault type PIP minimum (per person)
Arkansas add-on (can reject in writing) $5,000
Delaware add-on (can reject in writing) $15,000
Florida no-fault $10,000
Hawaii no-fault $10,000
Kansas no-fault $4,500*
Kentucky choice no-fault $10,000
Maryland add-on (can reject in writing) $2,500
Massachusetts no-fault $8,000
Michigan no-fault unlimited
Minnesota no-fault $40,000
New Hampshire optional $1,000
New Jersey no-fault $15,000
New York no-fault $50,000
North Dakota no-fault $30,000
Oregon add-on (can reject in writing) $15,000
Pennsylvania choice no-fault $5,000
South Dakota optional none
Texas add-on (can reject in writing) $2,500
Utah no-fault $3,000
Virginia optional none
Washington optional none
Washington, D.C. optional** none
Wisconsin optional none

* Kansas: PIP minimums are $4,500 per person for medical costs, $900 per month for one year for loss of income, $25 per day for in-home services, $2,000 for funeral, cremation or burial services and $4,500 for rehabilitation.

** Washington, D.C.: No-fault coverage in Washington D.C. is optional. If a driver has no-fault insurance and is in an accident, the driver has 60 days to choose whether to use no-fault coverage or file a claim against the other driver.

The no-fault states are Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah. Of the no-fault states, Kentucky, New Jersey and Pennsylvania are the three states that are choice no-fault states.

In no-fault states, the state required minimum coverage limits for no-fault insurance vary by state. For example, the required minimum limit for personal injury protection in Massachusetts is $8,000 per person per accident, but the limit in New York is $50,000 per person per accident and $3,000 in Utah. It’s wise to consider purchasing more coverage than the required state minimum. Medical expenses after a serious car accident can be very costly so drivers may opt for higher limits on personal injury protection.

Ten states and Washington, D.C. are not considered no-fault states, but they do require or offer PIP. The states where PIP is required but can be rejected are Arkansas, Delaware, Maryland, Oregon and Texas. The states in which PIP is truly optional are New Hampshire, South Dakota, Virginia, Washington, Washington, D.C. and Wisconsin.

Is your state not on the above list? That's because the state doesn't offer PIP coverage. It likely operates with traditional tort liability, which doesn’t restrict drivers from filing lawsuits after suffering injuries from an accident. With tort liability, fault in an accident must be found before compensation for medical expenses are paid. Most states operate under the tort insurance system rather than no-fault insurance.

Why states use the no-fault insurance system

Since its adoption by states in the 1970s, the no-fault insurance system has had the intention of benefiting injured accident victims and the courts in those states. The issue was courts were cluttered with too many small accident claim cases trying to prove fault in an accident, and it was taking too long for injured accident victims to receive payouts for medical expenses resulting from an accident. The process for determining fault in an accident is lengthy and expensive, which delays medical expense compensation. Thus, no-fault insurance was created to keep these cases out of the courts by limiting drivers from filing lawsuits after an accident in order to receive prompt compensation.

No-fault insurance prevents injured drivers from having to wait for fault in an accident to be determined before receiving medical expense payment. The idea was that the no-fault system would offer drivers lower insurance premiums because there would be fewer lawsuits.

In order for no-fault to work, states have caps on drivers’ abilities to sue other drivers after an accident. Drivers surrender their right to sue for accident injuries in many cases. However, drivers still may be able to sue if their accident claim reaches certain criteria set by the state - usually determined by either cost of medical expenses or type of injury.

While states have no-fault requirements because of the premise that it lowers insurance premiums, awards drivers compensation for medical expenses more quickly and avoids lawsuits, benefits of the system have often been questioned.

Flaws in no-fault insurance

States have questioned the worth and risks of no-fault insurance over the years. Some states have even repealed no-fault laws that were once in place because of the controversial and flawed system.

Price

When it was first created, it was believed that no-fault insurance would lower car insurance premiums for drivers in no-fault states because there would be fewer lawsuits. However, these regulations have done the opposite of that in most cases as no-fault states often have higher rates. No-fault accident claims are costly for insurance companies. In turn, rates increase for policyholders in no-fault states to make up for the cost.

Insurance fraud

The no-fault system is corrupted by insurance fraud. Scammers have unfortunately found ways to abuse the system. Many states, including Florida, New York and Michigan, have experienced fraud on the no-fault regulations. Drivers and medical professionals have scammed insurance companies by staging accidents and faking or exaggerating injuries. Scammers have been able to do this because of the lack of requirements to prove fault in an accident.

Accountability

Risky drivers who cause accidents are not held completely accountable for their actions with the no-fault system because their insurance company won’t have to pay for medical expenses of drivers injured in an accident caused by their insured.

Specifics of the no-fault laws vary by state. The cost of no-fault insurance varies based on the area you live in and the insurance company you have. Read reviews of insurance companies on Clearsurance to find out if your company offers quality insurance at a fair price.


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