The Different Auto Insurance Systems: Fault and No Fault

Have you recently purchased a new vehicle and had to purchase new insurance for it. Unfortunately, the newer your car, the higher your insurance premium is going to be. When the premium rises, it is always for a reason. Each state has a job to regulate the businesses that sell auto insurance and the price they sell it for.

Depending on where you live, you can potentially see wildly different premiums. There are two types of auto insurance systems:

  • No-fault
  • At-fault

Fault vs. No-Fault

The difference between fault and no-fault is that, under no-fault, the drivers file a claim with their insuring company. Under no-fault, the drivers are also usually forbidden to take one another to court except under a few rare circumstances. In fact, no-fault states do not even determine who was at fault in the accident.

The fault auto insurance system, also known as tort auto, allows driver’s some options after an accident occurs:

  • The driver can file a claim with their car insurance provider
  • The driver can file a claim with the at-fault driver’s vehicle insurance company
  • The driver can file a personal injury lawsuit against the at-fault driver

The tort auto insurance system is the most common. The person driving the vehicle who is responsible for the collision or accident is required to pay for the costs of the accident. They aren’t required to pay to fix their vehicle, but they are required to fix the other driver(s) involved. Depending on the state you live in, the way of determining who’s fault the accident was will vary.

The only time you will usually see the courts in no-fault states determine the accident was the fault of one of the drivers is when there is exceptionally high medical bills or property damage caused by the collision.

The benefits of a no-fault auto insurance state are:

  • Productive payment of claims
  • Low legal involvement
  • Lowered insurance premiums

The downsides of a no-fault car insurance state are:

  • You can only sue under certain circumstances
  • There is no incentive to be a safe driver (aside from policy premiums)
  • Insurance fraud is prevalent in no-fault states
  • Premiums in some cases are higher

The induction of the no-fault auto insurance system has since seen 24 states enable this system. However, there are three states that have a mix between the no-fault and at-fault car insurance systems. The three states are Kentucky, Pennsylvania, and New Jersey.

In these states, the holder of the insurance policy can decide which system they want to have so that you can think of this as a choice-based system. These required policyholders to choose which system they want when they either first purchase their policy or renew a current one. Unfortunately, once the policyholder decides on the type of system they want, they cannot change it. If they do want to change the system, this requires a full rewrite of their policy.