Traditional fault insurance puts the burden of paying for the injury costs resulting from an accident upon the party at fault.  This oft results in litigation to establish who was at fault and difficulties for the victims of uninsured motorists who were at fault.

In an effort to minimize these situations, some states have enacted no-fault auto insurance laws to try to control the cost of insurance and reduce the number of lawsuits enacted against other drivers.  Should you live in a no-fault state, it’s vital to know the ramifications of no-fault insurance.

No-fault insurance (also called “PIP” – Personal Injury Protection) is a type of insurance in which your insurance company covers your medical bills even when the accident is another driver’s fault.  Your PIP coverage pays regardless of who is at fault (hence the term “no fault”).  Since the purpose of no fault insurance is to reduce auto insurance premiums by avoiding the costs of going to court, with this type of coverage you forfeit your right to bring a claim against the at-fault driver.

No-fault auto insurance began with legal changes in states that allowed individuals to have their medical bills covered through their own insurance company rather than having to pursue legal remedies against the other driver’s insurance company.  While these changes began in the 70’s, they were expanded in the 90’s in many states and became comprehensive no-fault auto insurance policies.  Today, a dozen states and Puerto Rico have such programs.  These states are: Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Utah, North Dakota, Florida, New Jersey, New York, Pennsylvania, and Hawaii.  Three of these—Kentucky, New Jersey, and Pennsylvania–allow policyholders the option to choose between no-fault and traditional insurance.

With no fault insurance, there is typically a set limit for the amount of lost wages that will be reimbursed. No fault insurance may also offer coverage for property damage that occurs in an accident such as buildings, fences, or a parked car.  Usually, basic no fault car insurance doesn’t provide coverage for damages done to the vehicles involved in an accident.

The problem with no fault insurance is that there are strict limits as to how much your insurance will pay out per accident.  Any medical bills greater than the limits of your policy must be sought from the other driver.

Most no-fault states in the USA such as Florida have adapted no fault laws to permit the option to file a suit against other drivers in the case of serious injury.  While no fault insurance generally covers financial damage such as medical bills and lost wages, any pain and suffering damages can be sought only in the event of serious injury.  Each state defines “serious injury” differently — by either a monetary amount determined from medical bills or a certain degree of injury like disfigurement, paralysis, or death.  Attorney groups don’t like no-fault insurance laws for obvious reasons, but they also contend that such laws limit people’s right to sue.

While the intention of no fault insurance was to meet the basic costs of personal injury in vehicular accidents regardless of the cause, it has also helped to drive up costs and expenses for the insured drivers living in no-fault states, as well as their insurance companies that are required to provide coverage.

This entry was posted on Saturday, December 12th, 2009 at 12:26 pm and is filed under Auto Insurance Q&A. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.