How Does No Fault Auto Insurance Work?

Posted on Sep 20, 2018

How Does No Fault Auto Insurance Work

The term “no-fault” when it comes to auto insurance has been somewhat misused and abused over the years. The important thing to understand is that there are only 16 states (plus Puerto Rico) that have no-fault auto insurance laws.

If you do not live in Puerto Rico or one of the following states, no-fault insurance is not something you are likely to need.

  1. Arkansas
  2. Delaware
  3. Maryland
  4. Oregon
  5. Florida
  6. Michigan
  7. New Jersey
  8. New York
  9. Pennsylvania
  10. Hawaii
  11. Kansas
  12. Kentucky
  13. Massachusetts
  14. Minnesota
  15. North Dakota
  16. Utah

However, if you live in one of the above states, you are required to carry a minimum amount of no-fault auto insurance.

No fault auto insurance is optional in the following states:

  • District of Columbia
  • New Hampshire
  • South Dakota
  • Texas
  • Virginia
  • Washington
  • Wisconsin

Make sure you work with an insurance agency who understands the laws in your state concerning no-fault insurance and who will help you get the protection you need for yourself and your passengers.

What is No-Fault Auto Insurance?

No fault insurance refers to personal injury protection (PIP) insurance that covers medical treatment and hospital bills if you or passengers in your vehicle are injured in an accident, regardless of who is at fault in the accident.

Among the things no-fault insurance covers are:

  • Medical expenses, including hospital bills, caused by the accident
  • Missed income stemming from an accident-related inability to work
  • Funeral expenses

Each state that requires no-fault insurance has a state minimum amount. You must purchase at least this amount of no-fault coverage if you live and drive in one of these states.  That doesn’t mean you are limited to the state minimum amount of coverage. Your plan, however, likely has a maximum coverage value and you will have to purchase additional insurance if you want more protection.

There are things no-fault insurance does not cover. While it does provide financial protection from medical bills related to auto accident injuries, it does not offer financial protection for other things, such as:

  • Theft of the car
  • Items left in the car
  • Economic losses related to damage to your vehicle during the accident

These types of losses should be covered by the physical damage coverage you have on your vehicle or the other driver’s liability coverage.

How Does No-Fault Insurance Work?

After an auto accident in a no-fault state, you will submit medical expenses to your own insurance company instead of the other driver’s. Your insurance company will then pay the qualifying damages minus appropriate deductibles.

In most no-fault states, drivers can only sue the other party for non-economic damages, such as pain and suffering,  if certain thresholds have been breached. Those thresholds vary from state to state and usually involve one of the following two thresholds:

  1. Monetary thresholds, where lawsuits are allowable if medical expenses exceed a specific dollar amount.
  2. Verbal thresholds, where lawsuits are permissible if injuries are serious enough, will vary from one state to the next. It may be possible to opt out of such limitation on lawsuits; however, carriers will charge a higher premium if you choose not to limit your ability to sue the other party.

If you live in one of the states where personal injury protection (PIP) is allowed as “add-on” no-fault insurance, the situation is different. In these instances, your medical care (and the medical care of your passengers) is provided no matter who is at fault. However, it is still possible to sue for injuries and “pain and suffering.”

Learn More About No-Fault Auto Insurance 

The better you understand the basics of no-fault coverage the better-informed decisions you can make about the type of protection you require.

Working with a trusted insurance agent, like us here at Otterstedt Insurance Agency, can help you understand what this type of insurance does and how it will impact you should you ever find yourself facing injuries from an auto accident.

We’re here to help you learn more about no-fault insurance coverage, so you can choose the policy that best meets your needs. Contact us at 201-227-1800 for more information.

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