How No Fault Auto Insurance Works
by admin on 11/12/09 at 10:16 am
“No fault insurance” is a general term that is used to describe any auto insurance system that requires drivers to carry their own car insurance and that places limitations on their ability to sue other drivers for damages.
In an accident, under no fault laws, your auto insurance company will pay for your damages (up to your policy limits), regardless of who was at fault for the accident. Any other drivers involved will be covered by their own auto insurance policies. Under a pure no fault system, drivers would be completely covered by their own policy, and would be barred from ever suing another driver for damages.
However, no state uses a pure system. Instead, all “no fault” states actually use parts of both the no fault system and the standard liability system. Under a standard liability system you’re financially responsible for the cost of damages you cause.
Currently, only 12 states employ the no fault system. Obviously, it’s a good idea to understand your state’s requirements before you shop for insurance as Florida car insurance is very different from California car insurance which is very different from Texas car insurance and on and on.
No Fault Auto Insurance Policy Basics
The actual no fault part of your auto insurance policy is usually called personal injury protection, or PIP. Different states’ PIP packages cover different things, but in general benefits will include most injury-related expenses. The most common benefits are medical costs, loss of wages, compensation for loss of services, funeral expenses, and death benefits.
The amount and type of PIP required varies from state to state. In some no fault states drivers can actually choose whether or not they want to purchase PIP and drive under the no fault system. (If not, they operate under the standard liability, or tort, system.) Because no state is pure no fault, drivers can always be held financially responsible for the cost of injuries they cause in certain circumstances.
Some states allow injured parties to sue if their injuries meet certain standard for severity, while others allow it when total costs reach a certain dollar level. That’s why liability insurance is still so important, and why every no fault state requires it.
The Goal of No Fault Auto Insurance
No-fault insurance has the goal of lowering premium costs by avoiding litigation over the cause of the accident, while providing quick payment for injuries. However, critics of no-fault insurance note that it does not punish reckless or negligent drivers in litigation and that it is particularly difficult to sue if a person’s injuries leave them with a handicap. Proponents of no-fault insurance point out that auto accidents are inevitable and that at-fault drivers should therefore not necessarily be punished. Additionally, in regions with high numbers of uninsured motorists, the at fault party often does not have resources to pay their liability, leaving the accident victim with nothing.
Pros and Cons of No Fault Auto Insurance
Under current no-fault laws, motorists may sue for severe injuries and for pain and suffering only if the case meets certain conditions. These conditions, known as a threshold, relate to the severity of injury. They may be expressed in different ways such as verbal terms or in dollar amounts of medical bills.
Some laws also include minimum requirements for the days of disability incurred as a result of the accident. Because high threshold no-fault systems restrict litigation, they tend to reduce costs and delays in paying claims. Some states offer a no fault system (Example: Connecticut auto insurance policies are required to comply with the State of Connecticut’s no fault laws just like Ohio auto insurance policies and policies in the 10 other no fault states) and others offer a combination of no fault and liability.
While there are pros and cons of each system, knowing what your state offers can help if you are ever in an accident.
