What Does a No-Fault State Mean for Auto Insurance?

Reader Question: Can You Explain What a No-Fault State Is and What That Means When Compared to Other States?

Two Types of Insurance States and What They Mean

There are two types of insurance methods that states choose in their mandates they build for their residents: tort and no-fault. Some states use all of one or the other, and some use a combination of the two. The bottom line is that every state is different. Some states have auto insurance laws that are similar to a large number of states, and some states have laws that are very different.

Armed with this information, it’s crucial to ensure that when you are moving or getting insurance for the first time in the state in which you currently reside, that you get some professional insurance help or research carefully before you make the ultimate choices on your auto insurance policy coverage choices. It could mean the difference between being well-protected and being vulnerable to a lawsuit or out-of-pocket expense.

What Is No-Fault and Which States Use It?

“No-Fault” means that drivers have insurance to cover their own injuries and damage rather than insuring to pay out to the other person.

Florida relies mostly on the no-fault system of insurance. Florida requires residents to carry $10,000 worth of Personal Injury Protection (PIP) and $10,000 of Property Damage Liability (PDL). The PDL does, in fact, pay out for damages if a driver is at fault and causes damage to someone’s vehicle or property. The PIP is the no-fault part where each injured person makes a claim on their own PIP coverage to pay for medical bills.

Florida recently had a bill that was approved in which injured parties could only use $2,500 of their PIP if they weren’t seriously injured or had a medical physician note that the injured needed necessary further medical treatment based on the degree of injury. This measure is designed to reduce the amount of fraud or padding of medical bills that are being charged to PIP when they shouldn’t be or shouldn’t be as high.

Michigan is another state that provides the no-fault system of insurance. They are also considering several measures that will limit the amount of PIP that can be paid out for injured parties because at this time there is no limit on the amount of coverage an injured person can claim. If someone is injured in a car accident, even if it is his or her own fault, they can claim medical bills and disability payments for the rest of their lives if they can prove their medical issues were directly related to the car accident.

New York, Kentucky, Hawaii, New Jersey, Pennsylvania, and Texas also have PIP no-fault coverage they require for their residents.

What Is Tort and How Does It Work?

Tort car insurance requires that the law assigns “fault” and the person that is at fault is responsible for all medical bills, pain and suffering, and damage. Car insurance coverage will pay up to the limits the insured chooses, but if the limits are exhausted, they are still liable to pay out of pocket.

Just when you think you have it figured out…

Many other states have a blend of the two, of the tort and no-fault insurance laws. Even if it is not spelled out as “no-fault” or PIP coverage, most states will have a medical coverage that the insured have the option to include that will cover their medical bills of driver and passengers for no-fault coverage.

Many states will offer this as an option and others will require it “unless it is excluded in writing,” which typically means you need a specific form from the underwriting office of your insurer.

Before choosing or rejecting any no-fault options on your auto insurance, be sure you carefully research what it covers and what the consequences would be if you decided to exclude coverage for no-fault medical. Sometimes if you have a good personal medical health insurance policy, that would be enough reason to exclude the optional no-fault provision, but if you frequently have passengers, you will want to consider including the no-fault medical coverage and at the highest rate.

If you’re moving to a new state where PIP is required, it’s imperative to do all the research you can to ensure you truly understand what the differences are between fault and no-fault states. In states like Michigan, you could literally be put in a situation where an accident follows you around for life.


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