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What is no-fault auto insurance?

Important facts to know...
  • No-fault auto insurance is a very broad term that includes any auto insurance that has the policyholder recover directly from their own insurance company when they have a loss from a car accident
  • No-fault auto insurance also refers to a system of state laws that require a driver to first recover from his own auto insurance company for medical damages in an accident
  • There are 12 states that have a no-fault auto insurance system in place
  • Under a no-fault auto insurance system, the fault of the driver does not matter in terms of recovering for medical damages after an accident

Despite its name, a no-fault auto insurance policy does not mean that there was no party at fault for an accident.

Rather, a no-fault auto insurance policy actually refers to the way that parties recover from their car insurance companies after an accident. It has only been adopted by 12 states, so it is definitely not the norm.

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The Basics on a No-Fault Auto Insurance After a Car Accident

No-fault insurance is designed to take care of the medical damages in a car accident regardless of which driver actually caused the accident. In general, personal injury protection (PIP) coverage is part of a no-fault auto insurance policy.

This type of coverage is used for the insured’s medical bills and other damages related to personal injury in an accident.

Some of the types of expenses that would be covered under PIP coverage through a no-fault auto insurance policy include:

  • Medical bills
  • Lost wages
  • Rehabilitation expenses
  • Funeral expenses

Even though PIP coverage is a standard part of a no-fault auto insurance policy, it may also be required in states that do not have a no-fault auto insurance policy system. Other states may require policyholders to expressly opt out of PIP coverage in their car insurance policies.

If you do not live in a state where a no-fault auto insurance policy is mandatory, then you might have the option to get this type of coverage from your car insurance provider. If you think this coverage could be beneficial to you, speak to your agent to see if it is a possibility for you.

Where Does No-Fault Auto Insurance Apply

The following states have a no-fault auto insurance system:

  • District of Columbia
  • Florida
  • Hawaii
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey
  • New York
  • North Dakota
  • Pennsylvania
  • Utah

It is important to know that a no-fault auto insurance system only applies to medical damage from an accident in any of the above 12 states. That is, if there is damage to a vehicle from an accident, then none of the rules for a no-fault auto insurance system apply.

For damage to your vehicle under a no-fault auto insurance system, you would recover based on the relative fault of each driver in the accident.

Filing a Claim Under a No-Fault Auto Insurance Policy

When you file a claim under a no-fault auto insurance policy, the requirements are generally the same as under a traditional fault-based system.

This means that you need to cooperate with the auto insurance company in all of its requests for information related to the accident in order to be compensated for your medical expenses.

Do not be surprised if your car insurance company requires you to undergo a medical examination by the doctor of its choice to evaluate the extent of your injuries and the reasonableness of the expenses you are seeking to be reimbursed.

If you decline the medical exam, the car insurance company may be within its rights to refuse to pay for your claim.

In addition to a medical exam, you may also need to give a recorded statement about the accident to your auto insurance company.

You need to be completely honest in your recorded statement because you could be liable for a fraud or misrepresentation claim if you intentionally do not tell the truth to your insurer.

This means that the insurer would not have to pay for any of your claims, and you could also face criminal charges if you distorted the truth about the accident on purpose to try to get a bigger settlement.

Even though you are dealing with your own auto insurance company when your no-fault auto insurance policy applies, you may still run into issues with getting your expenses paid for.

Sometimes, it is necessary to rely on the assistance of a skilled an experienced attorney to get all of your medical expenses paid after an accident. The point of the no-fault auto insurance system is to make litigation unnecessary, but you still need to protect your rights.

Recovering Damages for Property Damage in a Car Accident

If you had damage to your car in an accident, you could rely on your collision coverage to repair your car.

Even though this is not required coverage, many drivers choose to add it to their car insurance policies because it can keep you from having to use your own resources to have car damage repaired.

If you lease or finance a car, collision insurance could even be a mandatory part of taking out the lease or the loan.

To cover vehicle or property damage, you want to get the right amount of coverage at the right price. Only you can determine how much collision coverage makes sense for your vehicle unless there is a specific requirement in your car lease or loan.

Once you have determined the type and amount of coverage you need, be sure to get multiple car insurance quotes so that you are not stuck paying more than you need to for collision coverage.

The Main Advantages of a No-Fault Auto Insurance System

One of the major benefits of having a no-fault auto insurance system is that drivers get to receive immediate medical attention after an accident without having to worry about figuring out which driver is at fault.

It is much easier for a driver to receive a settlement under a no-fault auto insurance system for medical expenses because they do not have to advocate for themselves against an adverse car insurance company.

In addition, no-fault auto insurance systems also help to reduce the number of lawsuits that are filed after car accidents. The reason for this is that for minor injuries, medical expenses are immediately paid.

However, if there are severe injuries from a car accident, then parties may still file suit to recover against the other driver’s car insurance company. While lawsuits are not eliminated entirely under a no-fault auto insurance system, they are far less frequent.

The Major Criticisms of a No-Fault Auto Insurance System

The no-fault auto insurance system has come under fire for having the potential for more fraud than the traditional fault-based insurance systems.

The origin of this concern comes from the various criminal enterprises that file false medical claims as a result of a purported accident. This type of fraud is mostly perpetrated by medical practices in states that have a no-fault auto insurance system.

These fraudulent claims are a serious drain on resources and are the subject of many state-level investigations.

Another common criticism against the no-fault auto insurance system is that there is an incentive to inflate the cost of medical care because there many not be an exact dollar threshold is required under state law for a claim to stay in the no-fault auto insurance system.

This means that medical providers may perform unnecessary care or inflate prices.

Lastly, for states that have low dollar thresholds on the amount of a claim that can stay within the no-fault auto insurance system, this does not necessarily cut down on the total number of lawsuits that are filed after a car accident.

In those states, it is very easy to surpass the threshold for medical claims that eventually turn into causes for recovery against the responsible driver’s insurance company.

The Bottom Line on No-Fault Auto Insurance

A no-fault auto insurance system means that a driver does not have to prove fault for an accident before recovering for any medical expenses incurred.

There may be a limit on the dollar amount of medical expenses that can be recovered through a no-fault auto insurance system.

This is a mandatory system in 12 states in the U.S. For claims involving physical damage to a vehicle, they are recovered via the traditional way of the fault-based system.

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