No Fault Auto Insurance

As the name implies, No Fault Insurance is a system that assesses no fault to drivers involved in automobile accidents. Therefore, if you are involved in an accident, your insurance company will pay your medical damages, within your policy limits, regardless of who is at fault.

In theory, the purpose for no fault insurance is to protect drivers by requiring them to possess auto insurance, which provides each driver with immediate medical treatment. This, in turn, limits a driver's ability to sue or be sued for damages, thus reducing administrative and legal expenses, and thereby driving down insurance premiums.

Currently, Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah and Washington DC mandate a No Fault system for its drivers.

In its purest form, a No Fault Insurance system would ensure that a driver's policy completely covered all personal injury damages of that policyholder while preventing that policyholder to sue for any damages or be sued by another driver as a result of an auto accident.

In reality, "No Fault" states (DC, FL, HI, KS, KY, MA, MI, MN, NJ, NY, ND, PA and UT) use a combination of no fault and standard liability systems, in which a driver may be held responsible for the cost of damages that he/she may cause. In some instances lawsuits may result based upon the severity of the accident/injury and dollar amount figure. Also, contrary to keeping insurance premiums down, no fault insurance policies can be expensive. So it is strongly recommended that you understand your state's no fault requirement. It also pays to compare and shop for the best policy coverage at the lowest premium amount. Luckily, on-line shopping and no fault policy quote comparisons are relatively easy to do.

A no fault policy is called a Personal Injury Policy or PIP. Generally, a PIP covers injury-related expenses: medical costs, associated loss of wages, compensation for loss of services, funeral expenses, death benefits, and in some cases, even certain rehabilitation costs. The types and amounts of PIP minimum coverage vary between states. For example, in PA, KY, and DC, drivers can choose to purchase PIP under a no fault system or opt to drive under the standard liability or "tort" system.

Again, some states allow litigation based on the severity of an accident injury or when a specified dollar amount resulting from an accident has been reached. Therefore, liability insurance is important such that every no fault state still requires its drivers to possess it.

No fault insurance summary:

No Fault Insurance Pros

  • Simplicity — No driver is considered at fault. Therefore, your own insurance company covers your medical/injury costs. Consequently, courts, attorneys, judges and juries are normally eliminated, which relieves taxpayers and generally reduces insurance rates.
  • Timely — You are guaranteed immediate compensation from your insurance company instead of enduring lengthy court settlements.

No Fault Insurance Cons

  • What’s not covered—Pain, suffering, emotional distress and inconvenience are normally not covered for compensation
  • Parameters—Medical expenses/lost income above pre-established policy limits are not covered
  • Property damage — Physical vehicle/property damage is not covered. Collision coverage and/or the other party's liability coverage is used to cover these damages
  • Liability thresholds—Pursuing a lawsuit may be limited to exceeding a prescribed level of accident/injury severity or monetary standards

As in any system, there are advantages and disadvantages. Therefore, it behooves you, the policyholder, to thoroughly do your homework and find the best policy that meets your state's requirements while balancing adequate insurance coverage with your financial posture.

You can find more on no fault insurance here.

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Information and resources:
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No Fault Auto Insurance
Auto Insurance ABC's
A Closer Look at Auto Insurance
Auto Insurance Definitions
Auto Insurance Discounts (definitions)
Auto Insurance Cost Variations
Steps to Lower Your Rate
Reasons for Cancellation
No Fault Insurance
Questions About Auto Insurance
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