A Closer Look at No-Fault Auto Insurance
If you’re thinking of buying an auto insurance package from your local insurance company, you might have come across seemingly alien terms such as “deductibles”, “premiums”, and “coverage”. However, what might stand out the most might be the term “no-fault”. This does not mean that you can be absolved of all blame in an accident – read on to find out more.
What is no-fault auto insurance?
No-fault auto insurance are polices that restricts, or even completely eliminates the rights of a policyholder to sue the other party over bodily injuries that was sustained from a car accident. The purpose of this policy is to reduce the cost of obtaining auto insurance policies – studies done previously has led to the conclusion that lawsuits have been contributing to a steady rise in insurance premiums. Interestingly, it has now been observed that the no-fault policy has actually led to a rise in insurance premiums as well.
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?
Threshold – 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 sets in, blocking parties from raising a lawsuit.
Verbal threshold – Building on this, a verbal threshold is the required verbal description of the injuries sustained from the accident before one party can sue the other party. The exact requirements varies 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 threshold being combined together to determine whether a lawsuit is eligible.
What coverage does no-fault auto insurance cover?
In essence, states that have the no-fault auto insurance will make it mandatory for vehicle owners to include the personal injury protection (PIP) coverage as part any auto insurance package 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.
However, for states that do not have no-fault laws in place, insurer of the party who’s at fault will pay the other party medical costs incurred due to the accident.
What no-fault insurance does not cover:
Health insurance – no fault auto insurance will not replace health insurance; they both will exist as separate policies covering different aspects. However, no-fault auto insurance will pay for what your health insurance does not reimburse.
Physical damage insurance – no-fault auto insurance will not have an effect on reimbursements for damages done to other objects or vehicles involved in the vehicle. In a nutshell, this means that you will still be held liable for any damage that you might have caused to another’s property. The usual route for determining who’s at fault will still go through, even if you’re in a no-fault state.
Under-insured/uninsured motorist coverage – If the accident involves a driver that is not insured by auto-insurance, or do not have sufficient coverage to fully pay for the damages, your no-fault insurance will not take over under-insured or uninsured motorist coverage. The no-fault auto insurance simply covers what is stated in the PIP, plus making it harder for the parties involved in the accident to take up lawsuits.
Auto insurance package – 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 a bid to reduce auto insurance premiums.
Fault-finding – if the legal process determines that you are the one at fault, you will still be required to pay for damages to the other party’s property. It does not relieve you of the liability from these damages you have done to the other party’s property.
Since its inception, the no-fault policy has been abused by many of its beneficiaries. For example, the medical community is known to have taken advantage of this by raking up huge medical bills through expensive, yet non-mandatory medical procedures. This has ironically driven up the premiums the insured have to pay under the no-fault auto insurance.