The terminology of no-fault auto insurance can be perplexing. What do you mean the accident wasn’t anybody’s fault? That driver hit MY car! (We can see such situations getting out of hand.) In truth, no-fault car insurance doesn’t actually mean the accident wasn’t anybody’s fault, it just means that the fault does not matter for car insurance purposes.
Okay, so now you’re wondering, what exactly does it mean? Will my car insurance premium go up even if I wasn’t liable in an accident? Why would anyone want no-fault? I’m a safe driver!
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Basically, all no-fault insurance means is that if you’re in an accident, your own auto insurance provider is responsible for paying medical bills, missed wages due to injuries, and additional loss claims. So if you and another car are in a fender bender at an intersection, the other driver’s insurance will pay for their damages and your carrier will pay for yours. That’s why you may also hear no-fault insurance referred to as PIP or Personal Injury Protection. You’ll still need to purchase collision coverage on your policy if you want coverage for vehicle repairs, as PIP solely pertains to driver and passenger injuries, not car damages.
No-fault car insurance also restricts lawsuits. There are limitations that vary by state that prevent either party from suing for additional damages or for pain and suffering. There are certain conditions that must be met before an individual can sue another driver for damages.
“True” No-Fault States:
- New Jersey
- New York
- North Dakota
Kentucky, New Jersey, and Pennsylvania allow you to opt-out of no-fault coverage and choose a traditional liability policy, where insurers pay out damages depending on which driver is deemed at-fault. If you choose to go for a traditional policy, there are no lawsuit limitations. The nine other states require no-fault insurance in order to properly insure your vehicle and they do have lawsuit restrictions.
Pros and Cons:
You may not have a choice in whether or not you purchase no-fault auto insurance but it can still be helpful to know the benefits and downfalls.
No-fault auto insurance is advantageous as it results in faster claim processing. That means, you can submit a claim to your own insurer and there’s no delayed back-and-forth between your provider and the other driver’s. This can be very helpful for injuries so that you can be reimbursed in a shorter amount of time. Also, no-fault states help cut down on flippant lawsuits. If specific criteria must be met before a driver can sue, less time and money is wasted. You simply receive prompt payments for medical expenses without waiting to see who is determined to be at-fault. Many states also suggest that no-fault insurance helps keep overall car insurance rates down as small claims are removed from the court system. However, if you have a serious injury or the cost exceeds a certain amount, you are still allowed to take action as long as you meet the “verbal” or “monetary” threshold.
Not every state needs no-fault insurance but the theory is that it should be helpful in cutting down unnecessary lawsuits if a state or city has a high amount of litigations. Though no-fault is ideally supposed to cut down on auto insurance premiums, the evidence varies. States have individual thresholds and there is currently no concrete, optimal amount. Some of these no-fault states are still considered either the most expensive or least expensive states to buy auto insurance from. In short, no-fault insurance may work well in one state and cause higher expenses in another. Another drawback is that high-risk drivers don’t exactly pay for their riskiness. While this could work out well for anyone with bad driving behavior, it can be a bit frustrating for someone who is very safe and careful as they are paying for another’s negligence.
No-fault insurance was implemented in the 1970’s when courts had to determine who was at-fault before claims could be submitted. To cut down on costs and drawn-out small claims, no-fault insurance became a practical option. Its usefulness in the modern auto insurance world is debated frequently and some of the original states have repealed the requirement. There is also discussion about whether no-fault insurance actually increases the risk of auto-insurance fraud.
“Add-On” No-Fault Insurance:
States with add-on policies are considered less restrictive. Car insurance providers are required to pay for their policyholder’s claims, but there aren’t any constraints on accident lawsuits. Some states (and districts) that offer add-on include:
- District of Columbia
- New Hampshire
- South Dakota
Add-on no-fault insurance removes the lawsuit restrictions and simply means that your insurer pays for your damages regardless of culpability. Whether or not you choose this option is up to you. Perhaps, for your individual situation you’d prefer that PIP claims are processed quicker or maybe you’d rather the at-fault driver pays up.
Consider all of your options and know your state laws. No-fault insurance may be required in your location, and it’s important to know how it works.