- What is no-fault insurance?
- No-fault car insurance states
- Who pays for damage in a no-fault state?
- What does a no-fault state mean and how does it work?
- Tort vs. no-fault insurance -- what's the difference?
- What is a no-fault state?
- No-fault states, by state
- Final thoughts on no-fault insurance
- Resources & Methodology
The definition of no-fault varies from state to state that chooses to be a no-fault car insurance state. The term “no-fault” refers to the fact that you do not need to prove who was at fault to receive compensation from your insurance company.
This means that someone else’s negligence won’t prevent you from getting help with medical bills or damages to your car if the other driver is responsible for a crash. Keep reading to see which states are no-fault and which use the tort system.
- There are different versions of car insurance, and the state you live in will determine which type you have.
- A no-fault insurance system means that when you have an accident, your auto insurer pays for damages up to a specified limit regardless of who is at fault.
- In true no-fault states, every driver on the road must carry a Personal Injury Protection (PIP) policy.
- Personal injury protection pays all the necessary medical bills following an auto collision with no maximum limit on coverage.
What is no-fault insurance?
No-fault insurance, sometimes also called personal injury protection insurance, covers medical expenses and loss of income, after your deductible and up to your policy limits, regardless of who is at fault for a car accident.
This type of coverage is different from other types of car insurance — liability insurance and collision insurance — because you file a claim with your own insurance company no matter who caused the accident.
Liability and collision insurance pay for damages depending on who is found responsible for the crash. Also, it’s important to know that no-fault insurance is not mandatory in every state.
No-fault car insurance states
The majority of states use a tort system, but 12 states and Puerto Rico have a true no-fault insurance system in place that restricts the right to sue.
These stateswhere personal injury protection insurance is required are:
- New Jersey
- New York
- North Dakota
Who pays for damage in a no-fault state?
Under a no-fault insurance system, when you have an accident, your auto insurance provider automatically pays for certain damages, regardless of fault, up to a specified limit. This is the opposite of a tort insurance system, in which someone is found at fault for a car accident, even if the fault is determined to be 50/50.
What does a no-fault state mean and how does it work?
Let’s look at an example to make things a bit clearer. Assume you were in a minor accident with another driver, we will call him Tom. Tom ran a stop sign and hit your car. You suffered injuries that came with $8,000 in medical bills. Under a no-fault system, you would submit a claim to your own insurance company which would pay it even though the accident was Tom’s fault.
In a tort state, you would submit a claim (or your insurance company would) to Tom’s insurance company to cover your medical costs since the accident was Tom’s fault. But suppose the accident was 30% your fault, the payout from Tom’s insurance company would be reduced by 30%, which your insurance company would cover.
If Tom was uninsured or you are dissatisfied with the payout, you can sue. In a true no-fault state, you must meet a threshold to sue. In most no-fault states, this type of accident would not meet that threshold.
This is a basic explanation of how a no-fault state works compared to a tort state, but there can be other systems in place — it just depends on your state.
Tort vs. no-fault insurance — what’s the difference?
There are a few different versions of auto insurance, and the state you live in will determine what type of program you have. Here is a quick overview of the various types of auto insurance systems.
No-fault insurance states
This auto insurance system is designed to lower the cost of auto insurance by removing the ability to sue. When an accident happens, each person involved in the accident is compensated by their own insurance company for small injuries, regardless of who was at fault. Neither driver can sue the other unless their injuries are serious and meet a certain threshold.
Making things more complicated is the different versions of no-fault insurance and differing thresholds that vary by state. The conditions that must be met before a driver can sue are known as the tort liability threshold and can be verbal terms such as severe disfigurement or death or a monetary threshold, which kicks in when medical bills cross a specified dollar amount.
In true no-fault states, drivers must carry Personal Injury Protection (PIP) coverage. Coverage provided by a PIP will vary by state, but in most, it should cover medical fees, lost wages, funeral costs and other out-of-pocket expenses. The major difference between states is the dollar limits on the various coverages.
Remember, no-fault insurance refers to injuries and medical bills. If your car was damaged in an accident but the other driver was at-fault, the cost to repair your vehicle would fall to the at-fault driver’s insurance.
Choice no-fault states
In these states, drivers can choose between a no-fault auto insurance policy and the more traditional tort policy. Only three states currently have a choice no-fault system. New Jersey and Pennsylvania have a verbal threshold for no-fault claims and Kentucky has a monetary threshold.
Tort liability states
This is a more traditional system and there are no restrictions on lawsuits. If you are at fault in a car accident, you can be sued by the other driver or any of their passengers for both medical costs and pain and suffering.
Add-on PIP coverage
In these states, drivers can carry a PIP policy and be covered by their own insurance company, but there are no restrictions on lawsuits. These are not considered true no-fault states as they lack restrictions on lawsuits.
In these states, PIP coverage may not be mandatory, and the benefits may not be as robust as in a true no-fault state. Arkansas, Delaware, Washington D.C., Maryland, New Hampshire and Oregon are add-on states.
What is a no-fault state?
The 12 true no-fault 12 states and the five other states that are not at-fault states but still require PIP coverage, and the five states that are not no-fault and offer it as optional coverage.
*Note: The District of Columbia is neither a true no-fault nor add-on state. Drivers are offered the option of no-fault or fault-based coverage. Still, in an accident, a driver who initially chose no-fault benefits has 60 days to decide whether to receive those benefits or file a claim against the other party.
*Source: American Property Casualty Insurers Association; Insurance Information Institute
No-fault states, by state
While states grappling with high car insurance costs try to repair their no-fault laws, states that have repealed them altogether have seen their premiums plunge.
Colorado let its no-fault law sunset in 2003 because “Governor Bill Owens was dissatisfied by it,” says Marianne Goodland, spokesperson for the Colorado Division of Insurance.
Colorado replaced its no-fault law with a more traditional tort system requiring motorists to purchase liability insurance coverage that pays out if they injure another person or cause property damage. Motorists must have at least $25,000 of bodily injury liability coverage per person, per accident; $50,000 for all injuries in one accident; and $15,000 worth of property damage liability coverage.
By 2008, premiums had plummeted by 35%, a consultant for the state found. That translated into savings of $322 per vehicle per year.
According to the Insurance Information Institute, these states had no-fault laws, but repealed them:
- Nevada: Effective 1974; repealed 1980
- Georgia: Effective 1975; repealed 1991
- Connecticut: Effective January 1, 1973; repealed 1993
- Colorado: Effective April 1974, repealed July 2003
Even among these states, the program details can vary dramatically. Let’s look at several states to see how their programs vary.
Michigan, for years, had one of the most comprehensive no-fault auto insurance systems in the United States. It also has the most expensive auto insurance in the country.
Michigan has the most expensive auto insurance in the nation, according to CarInsurance.com’s rate analysis. Michigan’s average annual premium for full coverage is $2,158 — almost $291 higher than the national average of $1,867.
How does no-fault insurance work in Michigan?
There are three parts to a Michigan no-fault policy that every driver must carry. This basic coverage is referred to by many as public liability and property damage, or PLPD. The three parts to the Michigan no-fault policy are:
Personal Injury Protection (PIP)
If you are injured in a car accident, personal injury protection, part of the no-fault policy, will pay all necessary medical bills with no maximum limit. (Until reform laws go into effect in July.) It also covers up to 85%of your lost income for up to three years.
This figure is revised yearly, and as of October 2018, the monthly maximum is $5,700. Injured parties are also entitled to $20 a day for replacement services if they are unable to provide them for their family, this includes things such as yard work or housekeeping.
Property Protection (PPI)
This coverage will pay up to $1 million for damage your car does to other people’s property. This can include things such as fences, mailboxes, buildings and even landscaping. It will cover damage to a vehicle if that vehicle was parked when you hit it, it does not cover damage to cars you hit that are moving.
Residual Liability Insurance
While Michigan’s no-fault law protects insured persons from being sued due to an auto accident, there are some circumstances where a driver can be sued.
According to Michigan’s official website, the following can result in a lawsuit:
- If you cause an accident in Michigan in which someone is killed, seriously injured, or permanently disfigured
- If you are involved in an accident in Michigan with a non-resident who is an occupant of a motor vehicle not registered in Michigan
- If you are involved in an accident in another state
- You can be sued for up to $1,000 if you are 50% or more at fault in an accident that causes damages to another person’s car, which is not covered by insurance.
A Michigan no-fault car insurance policy will pay out the following if you find yourself in any of the situations described above:
- Up to $20,000 for a person who is hurt or killed in an accident
- Up to $40,000 for each accident if several people are hurt or killed
- Up to $10,000 for property damage in another state
Remember, these are the state-required minimums, and most drivers up their coverage levels. If the damages exceed your policy coverage levels, you are on the hook for the remaining damages.
The big difference between Michigan and other no-fault states is the limits. Most no-fault states put a limit on the PIP amount but Michigan, until recent changes to its car insurance laws, guaranteed unlimited lifetime medical benefits to auto accident victims.
However, under a law that went into effect in July 2020, you can forego personal protection benefits if you have health insurance such as an employer plan or Medicare. Other options include sticking with unlimited coverage or choosing either $250,000 or $500,000.
This no-fault state pays out much less than Michigan for injuries under their no-fault policies which may be why their premiums are much more affordable.
Kansas PIP minimums:
- $4,500 per person for medical expenses made necessary by the accident
- $900/month (for up to one year) for disability/loss of income due to an accident
- $25/day for in-home services -house cleaning etc.
- $2,000 for funeral, burial or cremation expenses
- $4,500 for rehabilitation expenses
Like other no-fault states, you can sue if you meet specific thresholds. The thresholds in Kansas are: You have exceeded your PIP coverage for your medical expenses and your injuries qualify as “serious.” In Kansas, “serious injuries” are defined as follows:
- Permanent disfigurement
- Fracture of weight-bearing bone
- Compound, compressed or displaced fracture of any bone
- Permanent injury
- Permanent loss of body function
Florida requires all drivers to carry $10,000 of PIP insurance, an amount that has not been increased since 1972. Florida’s threshold for suing is verbal and includes the following:
- Significant and permanent loss of an important bodily function
- Permanent injury within a reasonable degree of medical probability
- Significant and permanent scarring or disfigurement
Unfortunately, $10,000 is rarely enough to cover the medical bills for even a moderate accident so accident victims attempt to prove their injuries are permanent so they can sue.
Final thoughts on no-fault insurance
Between 1971 and 1976, two dozen states adopted no-fault car insurance laws. Four decades later, spiraling medical costs and rampant fraud have made the system a persistent target for reform. No-fault insurance schemes can be expensive and lead to fraud, pushing up costs for everyone.
“A well-working no-fault system is a good auto insurance option for states,” says James Whittle, assistant general counsel for the American Insurance Association, a trade organization. But he concedes a well-functioning no-fault system is a challenge to come by. “We find that less and less to be the case.”
Resources & Methodology
Insurance Information Institute. “Background on no-fault auto insurance.” Accessed January 2023
— Michelle Megna contributed to this story.