Getting into an accident can be unsettling, as in the case of a minor fender bender, or downright devastating. The impact of personal injuries and expensive car repairs scare most of us, even though we have auto insurance coverage. One of the key things that insurance companies want to determine is who is to blame. Amid the police report, adjuster investigations, and overall confusion, throw in the concept of no-fault insurance. Keep reading for the answer to “what is no-fault insurance, anyway?”
What Is No-Fault Insurance?
The Purpose of No-Fault Insurance
While insurance companies work to determine which party caused an accident, there are often medical expenses that need to be paid. No-fault insurance is designed to help policyholders get paid more quickly and to reduce the chance of litigation. When drivers are injured in an accident, they can each file claims with their own insurance company for personal injury, loss of wages and other expenses.
No-Fault Auto Insurance Is Only Available in Certain States
Not every state has a no-fault system. In the Northeast, laws have been enacted in Massachusetts, New Jersey and New York.
In no-fault states, policyholders can make a claim with their own insurance company for personal injury benefits. They also have restricted rights in terms of suing after an accident. Even if you do not live in a no-fault state, you may be required to purchase personal injury protection. During the process of securing a quote, an insurance company will explain the laws that apply to you.
Limited Right to Sue
Insurance terms can be confusing, and some drivers mistakenly think that living in a no-fault state means that no party will be blamed for an accident if it occurs. This is not the case. As adjusters evaluate damage and insurance companies dissect police reports and additional information, there will be a determination of who was responsible for an accident.
Beyond the ability to apply to their own insurance provider for personal injury benefits, residents of no-fault states have a limited right to sue. While the specifics vary based on where you live, in general this means that there are restrictions on when you can sue the other party if they are determined to be at-fault.
In limiting the right to sue, states aim to reduce the number of lawsuits related to car accidents by making the threshold higher. Parties can sue if injuries are severe or an accident resulted in death. Each state sets its own threshold, which can be set in monetary terms (bills that equal a certain amount) or verbal terms (a description of the type of injury).
No-Fault Insurance Does Not Cover Repairs to Your Vehicle
Since no-fault insurance is limited to personal injury, property damages that result from an accident are handled in accordance with the “traditional” insurance process. Your collision insurance will pay claims for the damages incurred to your own vehicle if you opted for it. If your car is leased or financed, you would have been required by your financial institution to purchase this type of coverage.
Property Damage Liability Still Applies
No-fault insurance pertains to the personal injury component of damages after an accident. If you were responsible for the situation that occurred, you are still liable for the expenses related to property damage. This means that if you hit another vehicle and damaged it, you are responsible for paying your deductible, and your insurance company will cover the remaining expenses.
Optional No-Fault Coverage
What is no-fault insurance in the context of policy options? If you live in a state that does not have a no-fault system (Rhode Island, Connecticut, New Hampshire in the Northeast), you may still have the option of purchasing this type of coverage. Since there are benefits and disadvantages to no-fault policies, spend time thinking about what will be best in your individual circumstances or consult with an insurance agent. Those who opt for no-fault coverage often do so because it is easier to receive payment for medical expenses should they be injured in an accident.
There is an ongoing debate as experts, lawmakers, insurance companies and drivers weigh in on the impact of a no-fault insurance system. Some argue that the ease with which drivers can file claims with their own insurer increases fraud. Others counter with the necessity of providing drivers with a swifter way to handle injuries after an accident. Even among the states that have a no-fault system, there are varying litigation thresholds rather than one standard.
Whether you live in a no-fault state or not, the topic of no-fault insurance is one that may prompt you to review your policy, which is always beneficial. You might spend some time considering the potential financial impact of an accident or the ease with which personal injury claims will be paid. As you evaluate your own coverage to make sure it is sufficient for your needs, it is advisable to speak with an agent. Get clarification on policy terms and confusing phrases that complicate auto insurance discussions.
Still have a question about how no-fault insurance works? Want to know if it is required in your state? Let us know in the comments below.
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