No-Fault Auto Insurance

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Joel Ohman
Founder, CFP®

UPDATED: May 22, 2019

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Here's what you need to know...

  • As of 2012, the United States has 13 states with no-fault automobile insurance laws
  • Keep in mind that the limits for personal injury protection are extremely high and can affect your premiums
  • Even no-fault states allow victims to seek legal assistance through the criminal justice department and receive restitution
  • Making an excessive number of damage claims with your current auto insurance provider could cause them to reevaluate you as a customer

The debate between the pros and cons of no-fault auto insurance coverage dates as far back as the 1970s when at-fault insurance laws ruled the nation. Over time, some states made changes to these regulations due to frivolous lawsuits and in many cases, instances of fraud.

Those who propose no-fault insurance laws continue to receive lukewarm receptions from opponents because they disagree on several issues.

Proponents feel no-fault car insurance laws help protect many drivers from the inconvenience of a needless litigation process. They would much rather allow people to get on with rebuilding their lives after an accident than wasting time in courtrooms.

Those who oppose no-fault laws believe drivers should have the right seek legal assistance for compensation for their loss. Their main argument revolves around accountability and responsibility towards the driver who causes an accident.

Somewhere in the middle, lies the auto insurance industry. They feel a direct impact because of how the litigation process affects their line of business, specifically with insurance premiums. Thus, the battle continues to this day.

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The Definition of No-Fault Auto Insurance


Before you review the positive and negative implications of no-fault auto insurance coverage, you should really know what this means and how it affects you personally. You also need to find out if your state has no-fault laws.

You can find a brief explanation when you go directly to the Alabama Department of Insurance.

When you live in a no-fault state and have an accident, your auto insurance provider takes care of your financial loss directly. You simply make contact, file a claim, and receive the necessary compensation based on your coverage selections.

This simple process eliminates the need to pursue the at-fault driver because it might be you. After all, you do not decide who carries the blame, the car insurance companies do. Therefore, you also receive protection.

Going through the process is generally very quick because this law removes several steps, including trying to decipher how much one party contributed to the problem.

In at-fault or tort-based auto insurance state like Maryland where they strongly oppose no-fault laws, the car insurance provider must decide who caused the accident and assign a percentage to the claim.

If you have more than 50 percent liability, the injured party has the right to come after you. Likewise, if you have sustainable injuries and the auto insurance carrier finds them guilty, you can seek restitution.

However, regardless of the blame, you must remember that these issues only pertain to injuries. No-fault laws do not apply to property damage.

You will need to purchase collision coverage for this purpose and since all states require liability protection; this will pay for the victim’s vehicle.

You Can Choose Your Coverage Limits


One of the greatest benefits to no-fault auto insurance coverage is the ability to choose your limits called personal injury protection or PIP.

Because your car insurance company takes care of you personally, you have the luxury of selecting how much you want to receive for medical bills, lost wages, and rehabilitation.

If someone passes away because of a car accident, they also pay for the cost of the funeral or memorial service. Finally, death benefits go to the surviving family members.

When selecting PIP, you must make careful decisions because the limits are extremely high which can affect your annual premium.

You can find a good example of this statement by reviewing the New York PIP benefits provided by the Department of Financial Services.

Many consumers who do not have complete clarification of how PIP works will ultimately make poor choices. 

For this reason, you must evaluate your current financial situation and take a good look at your health insurance plan. If you have excellent health insurance benefits, you may not need as much PIP insurance.

However, if your employer only supplies you with minimal protection, you may require something in the middle or even the maximum.

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Helps Improve Driving Habits

Statistics show that the majority of the car accidents do not occur because of irresponsible and reckless behavior. In fact, many happen because of small, common errors.

No-fault insurance acts as a deterrent in many cases. Eliminating responsibility for other drivers sometimes means people become more aware of their actions.

In other words, if you know that your car insurance company pays for the damage, even if you did not cause the accident, you may drive a bit more cautiously.

Exercising caution is especially true when the odds are you will receive an increase in your rates after you file a claim. Instead of speeding, you may decide to follow the laws and drive defensively to avoid a collision.

You may not take your eyes off the road to read a map or look for something in your purse. Instead, you decide to pull over and reduce the chances of a minor accident.

You could also start paying close attention to other drivers, especially those who use their brakes often.

It may not seem fair, but if you continue to remain accident-free in a no-fault state, you can actually see a reduction in your car insurance rates in a short while; this is to your advantage and can save you a substantial amount of money.

Punishable Offenses Are Included

Male Judge Writing On Paper In Courtroom

Just because a no-fault state does not usually consider the guilty party, it does not mean obvious offenders get off without punishment.

On the contrary, reckless driving or drunk driving continues to surface everywhere and these people receive the sentence they deserve when they break the law.

Even no-fault states allow victims to seek legal assistance through the criminal justice department and receive restitution, even if they do not have major injuries.

When someone consistently disobeys traffic regulations, speeds in excess, and causes unnecessary accidents, the courts have full authority to intervene.

The Cost for a Policy is Higher

In many states with no-fault car insurance laws such as Minnesota, the residents typically pay higher premiums.

Regardless of who was at fault, the cost to the auto insurance providers to pay for medical expenses has a huge impact on the rates.

Although there are other factors that keep prices lower in certain states like theft, the sad fact is many residents of no-fault states do carry the burden of bad drivers because of this law.

This difference is why so many other at-fault states continue to fight to keep their current regulations. They understand the changes that accompany forced responsibility for actions many do not commit.

In many ways, it seems wrong to punish a driver who does not contribute to this kind of mishap. However, the states that do impose no-fault laws did consider all of the possible scenarios and decided this would provide better overall benefits.

However, the states that do impose no-fault laws did consider all of the possible scenarios and decided this would provide better overall benefits.

You Could Get Dropped

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No-fault coverage can also make it more likely for your insurer to drop you as a customer. The car insurance companies have a specific responsibility to pay for damages and this puts them in a very precarious position because they cannot continue to lose money.

If you make an excessive number of damage claims with your current auto insurance provider, they could start to reevaluate you as a customer and decide to drop you altogether.

Car insurance companies have every right to do this.

Regrettably, some people just have bad luck and it almost seems like they have a magnet for destruction wherever they go and you might be one of them.

You could be in a parking spot and pulling out slowly, only to have some mad person slam into you because they were speeding by.

Perhaps you stop at a red light. As the light changes, you proceed while someone decides to keep going through. They slam directly into your vehicle and now you need to report this to your car insurance company.

Do not think you did anything wrong. Actually, you did the right thing. You have every right to expect your provider to be on your side and these are typical issues drivers face each day.

The problem is your car insurance company may have a low tolerance for any type of accident and place a limit on the number of claims they accept from each customer. You probably do not have any clue what this number is until you receive a notice of non-renewal. Now it is too late.

Such a scenario makes it imperative that you take every precaution when driving in a no-fault state. While there are many benefits that can help you, there are also just as many ways to hinder you and unless you have the facts, you could be in for a very unpleasant awakening.

If you reside in a no-fault state, make sure you research the specifics very carefully and review your current car insurance policy. Now is the time for you to make the necessary changes to ensure that you do not have problems in the future.

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