UPDATED: Mar 13, 2020
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If you’re thinking of buying an auto insurance policy from your local insurance company, you might have come across some seemingly alien terms such as “deductibles”, “premiums”, and “coverage”. However, what might stand out the most might be the term “no-fault”. While the phrase “no-fault” might make it sound like your insurance will cover you no matter who’s at fault in an accident, this does not mean that you will be absolved of all blame in an accident even if you have a no-fault policy. Continue reading below to learn what no-fault auto insurance is and how it applies to you.
What Is No-Fault Auto Insurance?
No-fault auto insurance is a type of policy that restricts, or even completely eliminates the rights of a policyholder to sue the other party over bodily injuries that were sustained from a car accident. It pays for damages in an accident regardless of who is at fault.
In states with no-fault policies, your insurance will cover you even if you cause the accident. In states without no-fault policies, the party who causes the accident is liable to pay for damages.
These policies were made available and even mandated by law in some states, because of previous studies that led to the conclusion that the high number of lawsuits was leading to a rise in auto insurance premiums. Unfortunately, no-fault laws did not completely solve this problem.
It has now been observed that states, where no-fault laws have been implemented, have seen their average auto insurance rates slowly creep up. This is due to a number of factors, one of them being that the no-fault laws were being abused by many of its beneficiaries. For example, the medical industry is known to have taken advantage of no-fault by raking up huge medical bills through expensive, yet unneeded medical procedures.
Perhaps not surprisingly, studies have now shown that states that have repealed no-fault laws have shown a drop in their insurance rates.
What Are the States That Have No-Fault Laws?
Currently, 12 states have no-fault laws. They are Kansas, Florida, Hawaii, Michigan, New York, New Jersey, North Dakota, Massachusetts, Minnesota, Utah, Kentucky, and Pennsylvania. 3 of the 12 states, namely Pennsylvania, New Jersey, and Kentucky, offers partial no-fault laws – they are allowed to retain their rights to sue the other party for damages caused. (Note – Apart from no-fault laws, your state may have other auto insurance requirements.)
What Are “Thresholds” in No-Fault Auto Insurance?
Thresholds are rules that restrict the conditions for a lawsuit to be allowed against the other party. Without fulfilling these thresholds, the no-fault policies set in, blocking parties from raising a lawsuit. In other words, no-fault states, by law, will not allow you to file lawsuits against other drivers (in an accident) unless certain conditions are met. Usually, there are verbal and monetary thresholds that must be met before a lawsuit and be filed.
No-Fault Insurance Verbal and Monetary Thresholds
Verbal threshold – A verbal threshold is the required verbal description of the injuries sustained from the accident before one party can sue the other party. Basically, an injury’s severity must exceed a certain degree before a lawsuit can be filed. The exact requirements to meet this threshold vary from state to state.
Monetary threshold – This threshold refers to the specified medical costs that must be incurred before a lawsuit can be filed.
In some states, it is common to see verbal and monetary thresholds being combined together to determine whether a lawsuit is eligible.
What Does No-Fault Auto Insurance Cover?
States that have no-fault auto insurance required by law will make it mandatory for vehicle owners to include personal injury protection (PIP) coverage as part of any auto insurance policies they purchase.
PIP coverage will require the insurance company to reimburse the insured for the medical costs of injuries directly sustained from an auto accident, regardless of who’s at fault.
Here Are Some of the Things That No-Fault/PIP Insurance Can Cover:
- Your health insurance deductible (the amount of money you have to pay before your health insurance coverage kicks in)
- Whatever your health insurance does not cover, or exceeds what your health insurance company covers
- Funeral expenses (if there are fatalities resulting from the accident)
- Lost income resulting from the accident (if you are forced to miss work due to your accident)
- Additional services required due injuries sustained from your accident (ex. nursing, childcare, cleaning, etc.)
However, for states that do not have no-fault laws in place, the insurance company of the party who’s at fault will pay the other party’s medical costs incurred due to the accident. This is why it is always important to have adequate insurance whether you live in a no-fault state or not.
What No-Fault Insurance Does Not Replace/Cover:
Health insurance – no-fault auto insurance will not replace health insurance; they both will exist as separate policies covering different things. However, no-fault auto insurance will pay for what your health insurance will not reimburse.
Physical damage – no-fault auto insurance will not have an effect on reimbursements for damages done to other objects or vehicles involved in the accident. In a nutshell, this means that you will still be held liable for any damage that you might have caused to another vehicle. The usual route for determining who’s at fault will still be carried out according to law, even if you’re in a no-fault state.
Underinsured/uninsured motorist coverage – If you live in a no-fault state and the accident involves a driver that is not insured by their own car insurance or does not have sufficient coverage to fully pay for the damages, your insurance company will still pay for your damages even if the other driver doesn’t have insurance. Even if you live in a no-fault state, however, you still might want underinsured/uninsured motorist coverage for the extra financial protection it provides.
Your own auto insurance policy – No-fault auto insurance does not replace your auto insurance policy; you will still be required to purchase an auto insurance plan from an insurance company. The no-fault policy simply discourages lawsuits in an attempt to reduce auto insurance premiums.
Your own at-fault Liability – if the legal process determines that you are the one at fault, you still might be required to pay for damages to the other party’s property, if you meet the thresholds as discussed above. It does not relieve you of the liability from these damages you have done to the other party’s property.
Whether you live in a no-fault state or not, it’s very important that you maintain the legally required auto insurance coverage amounts. If you are worried that your coverage is inadequate, give your insurance provider a call to make sure you are well-insured. If you wish to shop for a new car insurance policy that covers you in any situation you might encounter on the road of life, please use the quote comparison tool at the top of this page to get started.