In no-fault states, drivers file a claim with their own insurer for medical bills related to injuries caused in a car accident instead of determining fault in the accident which is the process in tort states. The term “no-fault” refers to the fact that you do not need to prove who was at fault to receive compensation from your insurance company.
While living in a no-fault state means that someone else’s negligence won’t prevent you from getting help with medical bills if the other driver is responsible for a crash, there are downsides. No-fault states often are the most expensive states for car insurance, and insurance fraud tends to be higher in no-fault states.
Keep reading to learn about no-fault insurance, how it differs from a tort system and see which states are no-fault.
- There are different versions of car insurance, and the state you live in will determine which type you have.
- With a no-fault insurance system, you will file a claim with your own auto insurer for medical costs related to an accident, regardless of who is at fault.
- In true no-fault states, every driver on the road must carry a Personal Injury Protection (PIP) policy.
What is no-fault insurance?
No-fault insurance, also called personal injury protection insurance (PIP), covers your medical expenses and loss of income, up to your coverage limits, regardless of who is at fault for a car accident. No-fault insurance does come with a deductible that must be paid when making a claim.
No-fault coverage differs from other types of car insurance liability insurance and collision insurance because you file a claim with your insurance company regardless of who caused the accident.
No-fault insurance is only required in 12 states with the rest of the states using a tort system. A tort system establishes responsibility regarding who caused the accident and the at-fault driver’s insurance company will pay out for the resulting damages.
No-fault car insurance states vs. at-fault (tort) car insurance states
No-fault car insurance simply refers to who pays for injuries that occur in a car accident. In a no-fault insurance state, drivers must file a claim with their own insurance company for medical-related costs, regardless of who is at fault for the accident. No-fault insurance is often called Personal Injury Protection coverage, or PIP.
In a tort state, responsibility for the accident is determined and the responsible driver or their insurance company will need to pay for the damages caused by the accident, including medical issues.
In a no-fault state, each driver files a claim with their own insurance company, regardless of who is at fault. Each driver’s insurance company covers medical expenses (up to your coverage limits).
Drivers must carry a certain amount of PIP coverage in no-fault states to ensure that all drivers have some coverage if they are injured in a car crash.
In many cases, claims tend to be settled quicker in no-fault states as fault does not need to be established before the claim is handled.
However, in general, car insurance tends to be a bit more expensive in no-fault states for a few different reasons:
- Insurers have to pay out claims regardless of who is at fault
- Insurance fraud tends to be more common in no-fault states
- Drivers may exaggerate their injuries to get an insurance payout
Colorado replaced its no-fault law with a more traditional tort system requiring motorists to purchase liability insurance coverage. Colorado motorists must have at least $25,000 of bodily injury liability coverage per person, per accident; $50,000 for all injuries in one accident; and $15,000 worth of property damage liability coverage.
By 2008, premiums had plummeted by 35%, a consultant for the state found. That translated into savings of $322 per vehicle per year.
According to the Insurance Information Institute, these states had no-fault laws, but repealed them:
- Nevada: Effective 1974; repealed 1980
- Georgia: Effective 1975; repealed 1991
- Connecticut: Effective January 1, 1973; repealed 1993
- Colorado: Effective April 1974, repealed July 2003
No-fault car insurance states
Most states use a tort system, but 12 states and Puerto Rico have true no-fault insurance systems restricting the right to sue.
There are also five states that are tort states but still require PIP coverage, as well as five states that offer PIP as optional coverage.
Here are the states where personal injury protection insurance is required:
- Florida
- Hawaii
- Kansas
- Kentucky
- Massachusetts
- Michigan
- Minnesota
- New Jersey
- New York
- North Dakota
- Pennsylvania
- Utah
Tort states that require PIP coverage:
States where PIP is offered as an add-on:
*Note: The District of Columbia is neither a true no-fault nor an add-on state. Drivers are offered the option of no-fault or fault-based coverage. Still, in an accident, a driver who initially chose no-fault benefits has 60 days to decide whether to receive those benefits or file a claim against the other party.
*Source: American Property Casualty Insurers Association; Insurance Information Institute
What is a no-fault state and how does it work?
No-fault states require drivers to carry PIP insurance which allows them to get necessary medical treatment after an accident. No-fault insurance refers only to medical injuries in an accident, PIP coverage does not cover property damage.
The at-fault driver in an accident is still responsible for the damage to the other driver’s vehicle or any other property damage that occurs. This is typically covered under their car insurance policy’s property damage liability portion.
How a no-fault system works can vary, so learn how it works in your state.
For Example:Assume you were in a minor accident with another driver, Tom. Tom ran a stop sign and hit your car. You suffered injuries that came with $8,000 in medical bills. Under a no-fault system, you would submit a claim to your own insurance company which would pay it even though the accident was Tom’s fault.
In a tort state, you would submit a claim (or your insurance company would) to Tom’s insurance company to cover your medical costs since the accident was Tom’s fault. But suppose the accident was 30% your fault, the payout from Tom’s insurance company would be reduced by 30%, which your insurance company would cover.
If Tom is uninsured or you are dissatisfied with the payout, you can sue. In a no-fault state, you must meet a threshold to sue. In most no-fault states, this type of accident would not meet that threshold.
Who pays for damage in a no-fault state?
Under a no-fault insurance system, when you have an accident, each driver files a claim for their medical expenses with their own insurance company, regardless of who is at fault for the accident, up to their coverage limits.
Property damage is not covered with a PIP policy, so you would need to file a claim with the at-fault driver’s insurance company to get your vehicle repaired. If it turns out you are at fault, you will need to carry collision or comprehensive coverage, or you will have to pay out of pocket to have your vehicle fixed.
A tort insurance system, on the other hand, assigns fault in an accident and the at-fault driver’s bodily injury insurance will cover your medical expenses, up to their coverage limits.
Tort states vs. no-fault state systems in the U.S.
Car insurance is regulated at the state level, which means there can be major differences in insurance requirements depending on the state where you live.
“A well-working no-fault system is a good auto insurance option for states,” says James Whittle, assistant general counsel for the American Insurance Association, a trade organization.
Here is a quick overview of the various types of auto insurance systems used in the United States:
No-fault insurance states
A no-fault auto insurance system is designed to lower the cost of auto insurance by removing the ability to sue. When an accident happens, their insurance company compensates each person involved for small injuries, regardless of who was at fault.
Neither driver can sue the other in a no-fault state unless their injuries are serious and meet a certain threshold and threshold limits vary by state.
The conditions that must be met before a driver can sue are known as the tort liability threshold. The threshold will vary by state and can include specific medical issues such as severe disfigurement, death and loss of a body part, eyesight, or hearing. This is referred to as a verbal threshold, which spells out injuries that meet the threshold to sue.
A tort liability threshold can also kick in when medical bills exceed a specified dollar amount. Dollar-amount thresholds are less common than verbal thresholds.
In true no-fault states, drivers must carry Personal Injury Protection (PIP) coverage. Coverage provided by a PIP will vary by state, but in most cases, it should cover medical fees, lost wages, funeral costs and other out-of-pocket expenses. The major difference between states is the amount of PIP coverage you must carry. For example, Massachusetts requires drivers to carry $8,000 in PIP to drive legally.
Remember, no-fault insurance refers to injuries and medical bills. If your car was damaged in an accident but the other driver was at fault, the car’s repair cost would fall to the at-fault driver’s insurance.
1. No-fault state: Michigan
Under a law that went into effect in 2020, Michigan drivers can forgo personal protection benefits if they have health insurance such as an employer plan or Medicare. Other options include unlimited coverage or choosing $250,000 or $500,000.
The changes have helped lower rates a bit in the Wolverine State, but premiums are still higher than most states.
Every driver must carry three parts to a Michigan no-fault policy. This basic coverage is referred to by many as public liability and property damage, or PLPD. The three parts to the Michigan no-fault policy are as follows.
Personal Injury Protection (PIP)
If you are injured in a car accident, the personal injury protection, part of the no-fault policy, will pay all necessary medical bills with no maximum limit. It also covers up to 85% of your lost income for up to three years, but there is a monthly cap.
The Michigan No-Fault wage loss benefits figure is revised yearly; the current maximum is $6,811 per month for the period of October 1, 2023, through September 30, 2024. Injured parties are also entitled to $20 a day for replacement services if they are unable to provide them for their family, this includes things such as yard work or housekeeping.
Property Protection (PPI)
This coverage will pay up to $1 million for damage your car does to other people’s property. This can include things such as fences, mailboxes, buildings and even landscaping. It will cover damage to a vehicle if it was parked when you hit it; it does not cover damage to cars you hit that are moving.
Residual Liability Insurance
While Michigan’s no-fault law protects insured persons from being sued due to an auto accident, there are some circumstances where a driver can be sued.
According to Michigan’s official website, the following can result in a lawsuit:
- If you cause an accident in Michigan in which someone is killed, seriously injured, or permanently disfigured
- If you are involved in an accident in Michigan with a non-resident who is an occupant of a motor vehicle not registered in Michigan
- If you are involved in an accident in another state
- You can be sued for up to $1,000 if you are 50% or more at fault in an accident that causes damages to another person’s car, which is not covered by insurance.
A Michigan no-fault car insurance policy will pay out the following if you find yourself in any of the situations described above:
- Up to $20,000 for a person who is hurt or killed in an accident
- Up to $40,000 for each accident if several people are hurt or killed
- Up to $10,000 for property damage in another state
Remember, these are the state-required minimums, and most drivers up their coverage levels. If the damages exceed your policy coverage levels, you are on the hook for the remaining damages.
2. No-fault state: Kansas
This no-fault state pays out much less than Michigan for injuries under their no-fault policies which may be why their premiums are much more affordable.
Kansas PIP minimums:
- $4,500 per person for medical expenses made necessary by the accident
- $900/month (for up to one year) for disability/loss of income due to an accident
- $25/day for in-home services -house cleaning etc.
- $2,000 for funeral, burial or cremation expenses
- $4,500 for rehabilitation expenses
Like other no-fault states, you can sue if you meet specific thresholds. The thresholds in Kansas are:
You have exceeded your PIP coverage for your medical expenses and your injuries qualify as “serious.” In Kansas, “serious injuries” are defined as follows:
- Permanent disfigurement
- Fracture of weight-bearing bone
- Compound, compressed or displaced fracture of any bone
- Permanent injury
- Permanent loss of body function
3. No-fault state: Florida
Florida requires all drivers to carry $10,000 of PIP insurance, which has not increased since 1972. Florida’s threshold for suing is verbal and includes the following:
- Significant and permanent loss of an important bodily function
- Permanent injury within a reasonable degree of medical probability
- Significant and permanent scarring or disfigurement
- Death
Unfortunately, $10,000 is rarely enough to cover the medical bills for even a moderate accident so in many cases accident victims attempt to prove their injuries are permanent so they can sue.
Choice no-fault states
In these states, drivers can choose between a no-fault auto insurance policy and the more traditional tort policy.
Only three states have a choice no-fault system. New Jersey and Pennsylvania have a verbal threshold for no-fault claims, and Kentucky has a monetary threshold.
Tort liability states
This is the most common insurance system, and there are no restrictions on lawsuits. If you are at fault in a car accident, the other driver or any of their passengers can sue you for medical costs and pain and suffering.
In most cases, your liability insurance will cover the cost of medical treatment, rehabilitation, lost wages, legal costs and even legal settlements up to your coverage limits. However, once your coverage levels are exceeded you will be on the hook for any additional costs. In most cases, the minimum required liability coverage will not be enough in a serious accident.
Add-on PIP coverage
In these states, drivers can carry a PIP policy and be covered by their insurance company, but there are no lawsuit restrictions. Thus, these states are not considered true no-fault states.
PIP coverage may not be mandatory in these states, and the benefits may not be as robust as in a true no-fault state. Arkansas, Delaware, Washington, D.C., Maryland, New Hampshire and Oregon are add-on states.
Final thoughts on no-fault insurance
While no-fault insurance can provide the peace of mind that your medical bills will be covered if you are involved in a car accident, it often comes with higher car insurance costs and an increased risk of fraud.
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