Insurance Glossary: No-Fault Insurance

There are twelve states which offer “no fault” auto insurance, but what exactly does that mean? Here’s a brief explanation.

With standard insurance, if you are hit by another driver, you either file a claim against that driver’s liability insurance carrier or you file a claim with your own insurance company, and your company will contact the other driver’s company.

Then, the two companies will investigate the accident details and determine:

  • Which of you was at fault
  • Which company is going to pay
  • The reasonable medical expenses for injuries you received
  • Any non-monetary damages to which you are entitled

If you or the other driver is injured and there is a long recovery period, settlement of the claim and subsequent payment of any medical bills are delayed. As well, if there is an issue determining fault, that can delay payout of the claims. Drivers who file claims but are unhappy with non-monetary settlements can then pursue the other driver in court.

In a no-fault state, however, it doesn’t work that way.

Instead, when you’re in an accident, you file a claim with your own auto insurance company, and it pays no matter who is at fault. While your insurer and the other driver’s insurance company will still investigate to determine fault, so they can either recover the deductible you paid under your collision coverage (if you were not at fault) or raise your insurance rates (if you were.)

In addition, you’ll only receive compensation for non-monetary damages only if your injuries are considered severe enough to meet the threshold specified by your state, or if your medical expenses reach a specific level.

So why does no-fault insurance exist? If you live in a no-fault state, you’re prohibited from suing the other driver (or being sued) unless there was a significant amount of non-monetary (read: medical) damage. By limiting the number of lawsuits that can happen, claims are paid more quickly, and there are fewer litigation expenses.

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