No-fault insurance is designed to cover your medical expenses and/or loss of income when you're involved in a car accident, regardless of who was at fault. Some states require drivers to carry no-fault auto insurance, while others make this coverage optional. No-fault insurance is sometimes referred to as personal injury protection, or PIP.
- No-fault car insurance, sometimes referred to as personal injury protection (PIP), can pay your and your passengers' medical expenses if you're involved in an accident.
- With a no-fault policy, you submit your claim to your own insurance company, not the other driver's.
- No-fault insurance is mandatory in some states and optional in others.
- Even if you aren't required to have no-fault insurance, you must still have bodily injury and property damage liability coverage in virtually every state.
What Is No-Fault Insurance?
In most states, when a car accident occurs, the drivers' insurance companies attempt to determine who was at fault for causing it. So if you're in an accident and it's determined that the other driver caused it, you could file a claim against their insurance for any injuries or damages you sustained.
No-fault insurance doesn't consider who's at fault in a car accident when paying medical claims. Instead of filing a claim with the other driver's insurance company, you'd file it with your own insurer. It will then evaluate your claim and pay out damages to you, based on the extent of your financial losses.
Which States Have No-Fault Insurance?
Currently, 12 states—Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah—plus Puerto Rico have some form of mandatory no-fault insurance law, according to the Insurance Information Institute. It is also available on an optional basis in some other states.
While the laws vary from state to state, the industry divides them into three basic types: "pure" or "true" no-fault, choice no-fault, and add-on no-fault.
"Pure" or "True" No-Fault States
"Pure" (or "true") no-fault refers to policies where the driver's insurance will pay first-party benefits to the driver and their passengers and where drivers are restricted in their right to sue. First-party benefits means that the driver's insurance company will cover their medical and other expenses regardless of who is responsible in an accident. The following states (plus the territory of Puerto Rico) have pure no-fault laws:
- New Jersey
- New York
- North Dakota
- Puerto Rico
Choice No-Fault States
Choice no-fault refers to states that offer residents a choice of pure no-fault and a traditional automobile insurance policy that doesn't restrict their right to sue. These states (which also appear on the list above for offering pure no-fault) allow drivers that choice:
- New Jersey
Add-on No-Fault States
Add-on no-fault policies are a sort of hybrid. Like a traditional auto policy, drivers are free to sue, but first-party coverage can be added on to the policy, meaning that their own insurance company will pay their medical and other expenses. The following states (and the District of Columbia) have add-on no-fault laws:
- District of Columbia
- New Hampshire
- South Dakota
It's also worth noting that these laws are subject to legislative change. Colorado and Connecticut, for example, passed no-fault laws in the 1970s, only to repeal them several decades later. Pennsylvania also passed a no-fault law in the 1970s, repealed it in the 1980s, and then restored it in 1990.
How No-Fault Insurance Works
No-fault insurance is intended to reduce the demands on the court system associated with car accident-related lawsuits. States with no-fault laws generally allow you to sue for severe injuries or pain and suffering only when damages meet certain thresholds.
A typical no-fault car insurance policy will consist of:
- Bodily injury liability (BI) coverage
- Property damage liability (PD) coverage
- Personal injury protection (PIP) coverage
Liability coverage is mandatory in all 50 states except New Hampshire. In that state, drivers still have to furnish proof of financial responsibility in order to drive without liability insurance.
The liability portion of a no-fault insurance policy covers two distinct things: property damage and injuries caused to others. Property damage liability pays for damages to someone else's vehicle or other property in an accident you cause. Bodily injury liability coverage pays for medical expenses and related costs if you injure someone in an accident where you're found to be at fault. Your policy can have both a per-person bodily injury liability limit and a per-accident bodily injury liability limit.
Neither of those coverages pays for your own medical expenses or those of your passengers if you're involved in an accident. That's where the personal injury protection (PIP) component of a no-fault policy comes in.
Personal injury protection insurance allows you to file a claim for medical expenses or other costs resulting from a car accident, regardless of who was at fault. Depending on your policy, PIP coverage may also pay for lost wages or reimburse you if you have to hire someone to handle routine household chores for you while you're recovering from an injury.
Each state specifies a minimum amount of personal injury protection coverage that you're required to have as part of a no-fault policy. For example, you may need to have $10,000, $20,000, or up to $50,000 in PIP coverage. Minimum coverage amounts also apply to bodily injury liability and property damage liability insurance.
States also have different rules on what no-fault policies will pay for. In Michigan, for example, PIP insurance will cover all reasonably necessary medical expenses, with no maximum limit. It also pays up to 85% of lost wages if you're unable to work because of an accident-related injury. In New York, PIP coverage is capped at $50,000 per person and the lost wages payout is 80% of income, up to a maximum payout of $2,000 per month.
Filing a No-Fault Insurance Claim
If you're involved in a car accident and you have no-fault insurance, the first thing you'll need to decide is whether to file a claim at all. Filing a claim may be necessary if you or a passenger in your vehicle were injured.
Since this is no-fault insurance, you'd contact your insurance company to file any injury-related claim. You would need to provide details about the accident and the extent of your injuries, as well as documentation of your medical expenses or lost wages.
The insurance company would then process your claim and pay for your expenses, according to the coverage limits established by your policy. An advantage of no-fault insurance is that since there's no need to prove fault, claims can be paid much faster.
But it's important to remember that no-fault insurance policies have their limitations. In particular, no-fault insurance typically doesn't pay damages for pain and suffering. As mentioned earlier, some no-fault states do allow you to sue a negligent driver for pain and suffering, but you may only be able to do so in cases involving severe injuries.
Some states impose a set time frame for how long you have to file a no-fault claim following an accident.
How to Buy No-Fault Insurance
If you live in a state that requires no-fault insurance, there are a few things to know about purchasing it.
First, you'll need to know the minimum coverage amounts your state requires for PIP insurance as well as liability insurance. Then, consider whether those minimums are sufficient. You can always choose to purchase more PIP coverage or liability coverage if needed. Just bear in mind that more coverage will mean higher premiums.
Next, check to see whether there's a cap on medical expenses, what (if anything) the policy will pay for lost wages, and whether it covers other expenses, such as in-home help.
Also, consider who the policy will cover. In Michigan, for example, a no-fault insurance policy can cover your entire family. So if your teenage son is injured in an accident while riding as a passenger in a friend's car, your PIP coverage would still pay for his medical expenses.
Finally, ask about discounts that could help make your coverage more affordable. Safe driving discounts or bundling your car insurance with your homeowners insurance at the same company, for example, can help lower your costs.