What is No Fault Auto Insurance?

What is no fault auto insurance?

No fault auto insurance is a type of policy where drivers must pay their own the medical bills regardless of who caused the auto accident. The parties don’t have to prove fault before getting compensated for medical bills.

In 1988 in each of the 26 states (plus Puerto Rico and the District of Columbia) have passed some form of law often referred to as no-fault. Of these 26 states, only 14 have laws that are true to the original concept of no-fault in that they place restrictions on the right to sue. (The District of Columbia places restrictions on lawsuits when a policyholder elects to receive PIP coverage.)

The other states are known as “add-on” states because they add the most notable feature of no-fault—payments by the policyholders own insurance company regardless of fault—on to the existing system which places no restrictions on the right to sue. These 26 states require insurers to offer first-party liability (personal injury protection) insurance that will pay compensation to an injured person regardless of who was at fault.

Some states require drivers to purchase this protection, while others do not. Also indicated are the states that restrict lawsuits and those that do not. All but four of the 26 require drivers to purchase third-party liability insurance; those four states have financial responsibility laws only.

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New Jersey as of January 1. 1989 has a policy option which allows for a choice of either no threshold or a verbal threshold similar to New York’s. If consumers choose no threshold, they stay fully under the liability system. If they choose the verbal threshold. then they receive benefits regardless of fault in an accident. In a serious accident, the right to sue is retained under the verbal threshold. Looking for discount auto insurance? Click to compare quotes.

No-fault auto insurance laws differ in two critical areas—the threshold and the mandated benefit level. Florida, Michigan and New York have verbal thresholds. Under these laws, persons may sue if they have a serious accident.
A serious accident is defined by words, such as terms used in the Michigan statutes, “death, serious impairment of bodily function, or permanent serious disfigurement.” If persons are not seriously injured, they recover medical and wage loss benefits from their own insurance company and do not have the right to sue for either economic or non-economic damages.

The remaining states that restrict lawsuits have both verbal and monetary thresholds. Their verbal thresholds are similar to those in Florida, Michigan and New York in that they name types of serious injuries that permit lawsuits. Typically, such injuries include permanent disability, loss of body part, disfigurement and paralysis. All permit lawsuits in the event of death.

As indicated in the chart, monetary thresholds vary widely. Connecticut has the lowest monetary threshold, $400. In contrast, in Hawaii, which has the highest monetary threshold, medical and rehabilitative expenses must reach $6,000 before an injured person is permitted to sue.

The 14 states with no-fault laws which place restrictions on lawsuits also require that persons purchase a no-fault package of benefits. These benefits include medical, wage loss and funeral payments. Each state differs in the amount of coverage that is required to be purchased.

For example, Hawaii requires that policyholders purchase only $5,000 in medical payments, $1,500 in funeral benefits and an overall maximum of $15,000 for all benefits—medical, wage loss, replacement services and funeral expenses. Replacement services are those the victim would have provided to family members before the injury. By way of contrast, the state of Michigan requires that policyholders purchase unlimited medical benefits and wage loss benefits totaling over $70,000. Find discount auto insurance rates now!


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