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  • No-Fault Insurance and Fault Insurance

    Summary: No Fault vs. Fault Insurance

    No-Fault Insurance and Fault Insurance

    No-fault car insurance, commonly referred to as PIP insurance, is offered in a number of states. It pays for your injuries after an accident, whether or not you were found responsible.

    Fault and No-Fault Insurance

    When you get into a car accident, who pays?

    With traditional liability insurance coverage, the “at-fault” driver is responsible for paying the costs of damages and injuries to the other driver.

    However, with no-fault insurance (also referred to as personal injury protection or PIP insurance), the insurance company of each of the involved parties pays for its own policyholder. That means your company will pay for your damages, regardless of who was determined to have caused the accident. The same applies to the other driver, assuming he has car insurance.

    Defining “Fault”

    With regard to car insurance, “fault” refers to who caused the accident.

    You are considered to be the “at-fault driver” if you are determined to be the primary cause of the collision.

    In some cases, fault isn’t cut and dry. You may be 51% at fault, but that still makes you the at-fault driver in the fault (or tort) system.

    Liability Insurance vs. No-Fault Insurance

    Liability Insurance

    Most states require drivers to carry a minimum amount of liability insurance on their car insurance policies.

    Example: If your state’s liability requirements are set at 5/15/10, you must hold the following minimum coverage limits:

    • $5,000 per person toward injury-related costs.
    • $15,000 per accident toward injury-related costs (when multiple people are injured).
    • $10,000 per accident in property damage.

    You can opt to purchase higher coverage levels than the minimum requirements.

    Liability insurance pays for the other driver’s expenses when you are at-fault. If you live in a state with a tort system that does not offer PIP insurance (see below), you’ll pay for your own injuries with medical payments coverage and your property damage costs with collision coverage.

    No-Fault Insurance

    No-fault insurance coverage, or personal injury protection (PIP), is offered in states with no-fault laws (see below) to cover injuries to the policyholder resulting from an accident.

    In most cases, when PIP is offered, it is a state requirement, meaning you’ll have to purchase at least the minimum limits of PIP insurance coverage set by your state. In a select few states (Kentucky, New Jersey, and Pennsylvania), PIP is optional, but if you refuse the coverage you must do so in writing.

    When you have PIP coverage, your own insurance company pays for:

    • Qualifying medical injuries.
    • Lost wages after an accident, whether or not you caused it.
    • Funeral expenses.

    It’s important to note that PIP insurance doesn’t replace liability insurance; it is offered in addition to it in no-fault states. Your liability insurance will cover damages to another person’s vehicle when you cause an accident.

    When your injuries exceed your PIP limits, you may be able to collect from the at-fault driver's liability insurance for the additional costs.

    NOTE: Your liability insurance will never pay for your own injuries.

    States with No-Fault Insurance Laws

    States with no-fault insurance laws include:

    • Florida.
    • Hawaii.
    • Kansas.
    • Kentucky.
    • Massachusetts.
    • Michigan.
    • Minnesota.
    • New Jersey.
    • New York.
    • North Dakota.
    • Pennsylvania.
    • Utah.

    For more information on no-fault coverage, visit our PIP Insurance page.

    The History of No-Fault Insurance

    The idea of no-fault coverage grew out of the rising number of cases being brought to court after car accidents. An increasing number of drivers accused each other of negligence, and claims insurance adjusters at odds with each other over claims were crowding the court systems.

    Florida provides an example of a state that has undergone tort reform (the fault system of reimbursement). Adopted in 1971, the state’s no-fault insurance law was intended to:

    • Reduce car insurance rates.
    • Increase fairness of reimbursement.
    • Reduce the burden on courts.

    Now, 38 states remain under tort systems, while the other 12 states have no-fault systems.

    Choosing Your Car Insurance Coverage

    If your state requires no-fault insurance, it is a requirement; however, in select states (see above), you can opt out in writing.

    A reason to consider opting out of PIP if your state does not require it is that it can limit your right to sue after an accident. You can typically only sue if you suffer extremely expensive medical injuries above certain limits (set by the state).

    If you elect full tort (liability) insurance and opt out of no-fault insurance, you will not have limits on your right to sue after an accident; however, you may end up waiting longer for your claims to be paid out if the insurance companies involved are arguing over the claim.

    If you are not sure whether to opt in or out of no-fault insurance (when you have the choice), call your car insurance agent to go over the best options for you.