How No-Fault Insurance Works
No-fault insurance sounds great, but you don't just get to walk away from an accident scot-free if you carry it. Here's how it works:
If you're in an accident, you make a claim to your own insurance company for your damages or injuries. It doesn't matter who caused the accident. However, there's a catch: You can't sue to get the other driver or his insurance company to pay. This may explain another name for no-fault insurance: personal injury protection (PIP).
Here's where it gets complicated: In some states, drivers must buy no-fault insurance and can't in others. . Drivers in New Jersey, Kentucky and Pennsylvania are special; they can choose one or the other. In some states, the driver's insurance would cover any passengers in the car at the time of the accident -- otherwise, your passengers would be on their own.
What happens if you're in an accident in a state requiring no-fault insurance? A "true" no-fault state wouldn't allow lawsuits no matter what. There are no states with such an extreme law, but the term "true no-fault" is used to describe states where PIP insurance is mandatory and it's difficult to sue. In all states that require no-fault insurance, drivers still can sue if the damages involved are over a certain threshold. Usually, they can sue for actual damages but not for "pain and suffering." The threshold varies by state. There are two main kinds:
- Monetary threshold: Some states allow lawsuits if a person's medical expenses go over a certain dollar amount.
- Verbal threshold: Some states instead allow a lawsuit if injuries are deemed "serious." Death is usually considered serious enough, but states set the definition of "serious" otherwise.
Some states allow "add-on" no-fault insurance. In those states, a driver can pay extra to add PIP protection to a policy. In case of injury, that driver will get paid no matter who was at fault for the accident. But the driver still can sue to get money for injuries as well as "pain and suffering." The driver also can be sued.
And then there are states whose laws allow "choice no-fault insurance." These systems vary by state but basically allow drivers to choose whether they want to be insured under a no-fault plan or keep more rights under the old-fashioned tort system. If you choose no-fault, your rights to sue are restricted, as are the rights of others to sue you. If you don't choose no-fault, you can sue – unless the other driver chose no-fault. The traditional tort option usually costs more but has the potential of bigger payouts in case of an accident.
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