No-fault insurance is one of the car insurance coverages that many people do not automatically understand. It’s only offered in “no-fault” states who are continuously adopting the no-fault insurance concepts.
Most states have for a long time, followed the traditional fault-based claim rule. Fault insurance dictates that a wrongful act should lead to legal liability on the wrongdoer. For instance, if you’re involved in a collision or car accident and you are injured, you can claim compensation against the “at fault” or negligent driver who has a legal responsibility to pay your damaged property or medical bills.
The fault-based claim process usually takes a long time and without any guarantee of compensation. The driver’s insurance company may also still deny the claim and force you to file a lawsuit. This whole proof and claims process can be expensive and time-consuming.
This is why several states are changing their car insurance systems and begin to adopt the “No-Fault” car insurance coverage. States are even now categorized as at-fault and no-fault states.
Understanding No-Fault Insurance?
There’s confusion when it comes to what no-fault insurance is or how it works. So, the basic definition of no-fault insurance is that:
“No-fault insurance helps you cover yourself and your passengers’ medical expenses and loss of income when you’re involved in a covered accident, regardless of who is legally at fault. Your no-fault accident is also referred to as personal injury protection insurance (PIP) which also covers those who do not have health insurance.
The differentiating part of no-fault insurance is the last part, which says, “regardless of who is legally at fault.” This sets no-fault insurance apart from other car insurance coverages such as liability, comprehensive, and collision – which uses the “at fault” process.
If the cost of medical care after the accident exceeds the car’s insurance policy’s PIP limits, health insurance can sometimes cover any further expenses. Essentially, policies have a ‘per-person maximum’. This means that medical expenses coverage is limited to a certain amount per person if an accident injures multiple people.
What Does No-Fault Insurance Cover?
You can make an insurance claim with no-fault insurance regardless of who’s at-fault during an accident or collision. So, here are the covered items in the no-fault insurance policy for the driver (policyholder) and their passengers:
- Repair for the damaged vehicle
- Medial and Hospital expenses that result from the accident
- Health insurance deductibles
- Income losses from the accident resulting from the inability to work
- Sometimes, funeral expenses in case of death
Note: If, after the accident, you find your property stolen from your car, no-fault insurance will not cover the stolen property. No-fault insurance does not cover theft. Your comprehensive insurance will help you replace the lost items.
Is No-Fault Insurance Optional?
In some states, no-fault insurance is not an option. However, some states require that any medical expenses incurred in a covered accident is covered by medical payments insurance (also called med pay), and not no-fault insurance.
Some states have no-fault insurance as one of the minimum car insurance requirements. If you’re in the no-fault states, you’ll be required to have no-fault insurance as part of your car insurance package.
Where no-fault has options, the driver with an at-fault insurance policy will use the same claim procedure as a traditional at-fault insurance or tort system claim. This driver retains the right to sue.
Some at-fault states can allow individuals to purchase no-fault insurance as additional insurance coverage works as personal injury protection in no-fault states. This allows insurance companies to give individuals the benefits of no-fault insurance. However, the individuals who acquire no-fault insurance in at-fault states can sue and be sued for pain and injuries obtained in an accident.
How Much No-Fault Insurance Do I Need?
If you live in a state requiring PIP, you need to have no-fault coverage. The amount of no-fault or PIP that you need depends on several factors.
For example, if your health insurance already provides coverage for rehabilitation and injuries acquired during a car accident, you’ll only need to purchase the minimum amount of no-fault insurance required by your state.
Similarly, if your state classifies no-fault coverage as added courage or optional, then you check if your health insurance covers expenses related to car accidents to make a decision. You can also support that decision if your deductible and your policy’s out of pocket maximums can enable you to take a PIP or no-fault insurance.
Does No-Fault Mean No One Is at Fault?
There is a common misconception about no-fault insurance that the insurance provider won’t try to determine who is at-fault in the event of an accident. That misconception is misleading.
In every accident, the insurance provider will always find where to lay the blame. This is why insurance companies must always assign a given percentage of fault to each of the involved drivers.
So, no-fault insurance does not mean that no one is at fault. It only means that your insurance provider pays your damages without considering the driver whose fault caused the accident. If the other driver also had no-fault car insurance, their insurance company will also do the same.
It is also important to understand that drivers can only sue the other party for severe injuries, pain, and suffering if the case is covered or meets certain conditions called thresholds under no- fault insurance. The thresholds need to relate to the severity of the injury. They may be expressed in verbal terms (a descriptive or verbal threshold) or in dollar amounts of medical bills, a monetary threshold.
What Are The Benefits Of No-Fault Insurance?
Before insurance companies started adopting no-fault insurance, an accident would prompt the two insurance companies to battle it out and determine whose fault caused the accident. Then the company insuring the at-fault driver would pay all the related damages. This process was long and sometimes expensive.
The benefit of no-fault insurance is that it is quick and easy to work out. It helps individuals take care of their car repairs, damages, and any medical bills quicker than the traditional insurance claim processes.
Generally, no-fault insurance cuts out the high cost and lengthy legal battles that consume time and resources. This also helps insurance providers to offer lower insurance rates to policyholders.
Are There Drawbacks To No-Fault Insurance?
No-fault insurance makes claims simpler but it also gives a negative impression on the parties impacted. Usually, the at-fault party will see an increase in insurance rates on the next renewal.
Also, the injured party’s insurance provider has to pay out on the claim instead of the at-fault party’s insurance provider taking the responsibility.
No-fault insurance may restrict the amount of claim payouts for some injuries because of cap rates. This may limit pain and suffering claims.
Nonetheless, cooperation with the insurance company is important. State laws often require that you need to cooperate with your insurer in an accident of a no-fault claim. For instance, giving your insurer a recorded statement or attending a medical examination with an insurer-selected physician.
If you don’t cooperate with the insurer-required process, the insurance company may find grounds to deny you the claim.
Final Word
Like everything else, no-fault insurance has pros and cons. It’ll make your car insurance claims process faster and simpler, but this may vary from claim to claim or state to state. You need to be aware of the laws of your state to decide on no-fault insurance. Importantly, no-fault insurance does not mean that you’re not at fault of the accident.