No fault line - sign
There are 13 "No fault"-States in the US. But what does it mean?

Car insurance terms sometimes may sound confusing. For example: Thirteen states operate as ‘no-fault’ states concerning auto insurance. Isn’t fault usually clearly defined when it comes to car accidents though? This makes the term ‘no fault’ insurance and states that are ‘no-fault’ seem a little odd. If it’s as it sounds, everyone would want to live in a no-fault state if it means they’re not going to be at fault in an accident, even if they DID cause the accident; that’s a pretty accurate assumption, right?

However, that’s not really what no-fault insurance and no-fault states mean at all, and it’s one of the most confusing terms of auto insurance. This means that if there’s an accident, the insurance company will only pay for any damages and/or medical injuries of their policyholder, completely independent of the fact of who’s fault the accident was, and you will basically file all claims with your own insurance company.

List of No-Fault States

The thirteen states who are no-fault states are: Florida, Hawaii, Kansas, Kentucky (by choice, see below), Massachusetts, Michigan, Minnesota, New Jersey (by choice, see below), New York, North Dakota, Pennsylvania (by choice, see below), Utah and Puerto Rico. However, some changes in Florida and Michigan have been occurring in order to help make sure the no-fault system isn’t abused, since it can often be a precursor to auto insurance fraud.

What is No Fault Car Insurance?

Regardless of where you’ve lived, you’re probably familiar with Bodily Injury Liability (BIL) insurance, a required coverage mandated by the state, which pays for the medical expenses of others that are injured in an accident you were 100% responsible for. Your Property Damage Liability (PDL) will pay for damage you caused to any other personal property or vehicles of others.

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In a no-fault state though, your insurer is only going to pay for the damages or medical expenses of their policyholder. So if a policyholder was injured or had property damaged in an accident they weren’t responsible for, THEIR insurance carrier will pay for their expenses, while the at-fault party’s insurer will pay for the at-fault driver’s expenses. Simply, in no-fault states, your insurance policy takes care of you and you only.

No-Fault systems were

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originally created in an effort for a reduction in litigation expenses that occurred after car accidents in hopes to decrease surperfluous lawsuits, like those that often arise after fender benders that result in simpler injuries like ‘whiplash’ but that still bring about lawsuits asking for pain and suffering retribution, medical expenses, and

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even non-medical expenses, like lost wages. . Pain, suffering and other non-medical damages simply go away in a no-fault system. Some say that no-fault insurance also expedites the payment process.

However, there are people against the no-fault insurance system. Those in opposition think such a set-up doesn’t punish responsible, at-fault drivers who may have made poor, reckless driving decisions, especially when a not-at fault driver ends up paralyzed, an amputee, or has permanent brain damage., Those against no fault systems say it doesn’t allow the injured or affected to seek retribution for their injuries or losses. No-fault states often completely eliminate the amount of legal resource that the not at-fault driver or victim has.

Two Types of No-Fault Insurance

States are either no-fault or not. However, there are different kinds of no-fault systems, and the term ‘no-fault’ is actually an umbrella term that describes two different types of no-fault systems that vary between no-fault states.

1. Quantitative Monetary Threshold

This type of policy sets specific limits on what it will pay for medical costs and lost wages. Once the available funding is used up, the injured party has the option of litigation. The down-side of this is that medical bills may be padded from the outset in order to reach the limit and make claim for further funds.

2. Qualitative Verbal Threshold

In States where this is the norm, the injuries which warrant litigation – severe injuries like death, disfigurement and/or permanent disability – are defined and determined ahead of time by the State. Of course, in some circumstances there will be injuries which are severe, but which do not meet the State’s pre-defined benchmark. In cases such as these, the injured party may be left without compensation.

Three States Offer Policyholders a Choice

In Pennsylvania, Kentucky and New Jersey, citizens can choose between no-fault or choose to to litigate when there’s a car accident. This choice must be made at the time the policy is written and may not be changed unless/until a new policy is purchased. While this choice does affect the price of the insurance premium it is, at least, a choice.

If you are living in one of the above states, make sure you understand the insurance you are buying. Your insurance agent will explain the options and the cost differential to you in order to help you be sure you are amply covered.

The cost for tort coverage is higher if you have an imperfect driving record or are a young driver. This is due to the higher risk taken on by the underwriter and his likelihood of having higher payouts as a consequence of insuring the higher-risk driver.

Once again, think carefully about the long-term. Will saving a few dollars on your monthly premium place you in a position where you are unable to collect sufficient damages? Think before you buy.

If you are considering a move to a state where no-fault insurance is the rule, be certain to rely on the expertise of your insurance agent. His or her information and advice will be invaluable as you explore ways of making sure your assets are thoroughly protected.

Image: Flickr.