When reading up on car insurance coverage, you will have come across the terms “no-fault” and “at-fault” coverage. Insurance is a complicated topic in general, and the difference between no-fault and at-fault coverage can seem overwhelming. However, when we get down to the brass tacks, it will not take too long to explain.
What simplifies the issue is that you do not decide whether to get at-fault or no-fault car insurance. Rather, twelve states prescribe no-fault car insurance, called no-fault states. You can take a look at this full list of states to see if no-fault insurance applies to you.
Let’s get into what no-fault car insurance means and why it is important.
The Terminology
The terms at-fault and no-fault refer to who is designated to pay certain claims. At-fault insurance denotes a system in which claims are paid out by the driver who was at fault for the accident (if it can be determined). No-fault systems require each driver to claim from their own insurance, no matter who was at fault for the accident.
It is important to assert that the question of at-fault vs no-fault claims is specifically in regard to bodily injuries inflicted by the accident. When it comes to repairs to the cars involved, the at-fault driver’s insurance pays out for both parties.
What impact does no-fault insurance have on you as a driver?
No-Fault Insurance Premiums
No-fault states require that every driver takes out personal injury protection (PIP) insurance. PIP insurance covers deductibles, medical bills, lost wages, and funeral expenses when necessary. It does not cover damage to vehicles or property.
If you are in a no-fault state, PIP will mean you are paying higher premiums than you would in an at-fault state. While you can get PIP in certain other states, you cannot forgo PIP in no-fault states.
How much PIP do you need?
The amount of cover you need to take out for PIP depends on the state. In most states, you require somewhere between $3,000 and $10,000 in cover. In New York, however, you need coverage of $50,000 per person. In North Dakota, that number is slightly lower, at $30,000 per person.
Importantly, Michigan requires that you get a million dollars of coverage in property protection insurance (PPI).
Why does no-fault insurance exist?
No-fault insurance coverage exists so as to ensure that every person hurt in an accident gets the medical treatment they require. Rather than having drawn-out legal cases to try and get the at-fault driver’s insurance to pay, the money is made immediately available by the PIP.
This also prevents economically disadvantaged individuals from insurance companies looking to take advantage of accidents in which liability is ambiguous.
No-fault insurance was proposed in some states as a mandatory tax, with the idea of increasing the price of gas to cover it. However, these proposals were scrapped and, although it is mandatory, the individual is responsible for their own PIP coverage.
Lawsuits in No-Fault States
Although no-fault insurance was introduced to prevent lawsuits over medical bills, there are cases in which you can sue an at-fault driver in a no-fault state. In some states, you can sue if the bodily injuries are particularly severe. This is called a verbal threshold. In other states, you can sue if the medical bills exceed a certain value. This is called a monetary threshold.
In Kentucky, New Jersey, and Pennsylvania – all of which are no-fault states – you can choose at-fault insurance over no-fault insurance, in which case you do have the opportunity to sue even when thresholds are not reached.
The impact on premiums
As with any other insurance claims, PIP claims will likely cause your insurer to raise your premiums. This is even when the other driver was at fault for the accident. If this seems unfair to you, you’re not alone. Nonetheless, there is little you can do about it in a no-fault state. However, some insurance companies offer forgiveness for claims under a certain dollar amount.
No-Fault vs. At-Fault Insurance
In most states, you do not have a choice when it comes to no-fault or at-fault insurance. In particular, twelve states require no-fault insurance, which means you have to spend on PIP. No-fault laws were enacted to protect economically disadvantaged drivers and passengers. No matter whose fault the accident was, injured parties will receive funds to get swift treatment.