What Is No-Fault Insurance?

Read our blog post to find out what is no-fault insurance and use our website to get free car insurance quotes. No-fault insurance is designed to quickly pay personal injury claims and lower potential lawsuit costs. No-fault insurance often includes or requires personal injury protection (PIP) coverage, which can pay for each insured’s medical care after an accident, no matter who’s guilty.

free car insurance quotesThe term “no-fault” auto insurance is often used inaccurately to denote any auto insurance program that allows policyholders to recover financial losses from their own insurance company, regardless of fault. But in its strictest form no-fault applies only to state laws that both provide for the payment of no-fault first-party benefits and restrict the right to sue, the so-called “limited tort” option. The first-party (policyholder) benefit coverage is known as personal injury protection (PIP).

The degree of coverage varies by state. In states with the most all-inclusive benefits, a policyholder obtains compensation for medical fees, lost wages, funeral costs and other out-of-pocket expenditures. The major differences encompass dollar limits on medical and hospital expenses, funeral and burial expenses, lost income and the amount to be paid a person hired to perform essential services that an injured non-income producer is incapable to perform. Drivers in no-fault states may sue for severe injuries if the case meets certain conditions. These conditions are known as the tort liability threshold and may be expressed in verbal terms such as death or severe disfigurement (verbal threshold) or in dollar amounts of medical bills (monetary threshold).

In choice no-fault states, drivers may select one of two options: a no-fault auto insurance policy or a traditional tort liability policy. In traditional tort liability states, there are no restrictions on lawsuits. A policyholder at fault in a car crash can be sued by the other driver and by the other driver’s passengers for the pain and suffering the accident caused as well as for out-of-pocket expenses such as medical costs.

In add-on states, drivers obtain reimbursement from their own insurance company as they do in no-fault states, but there are no constraints on litigations. The term “add-on” is used because in these states first-party benefits have been added on to the traditional tort liability system. In add-on states, first-party coverage may not be mandatory and the benefits may be lower than in true no-fault states.

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