No-fault insurance has been around since the 1970s, but many drivers don't understand it any better today than they did 40-plus years ago. That may be partly due to some states having adopted hybrid versions of no-fault law. Here's the scoop on what we'll call 'pure' no-fault law.
"Pure" no-fault insurance is just what it sounds like
No-fault insurance compensates the policyholder for medical bills resulting from an accident regardless of whether he caused it or the other driver did; no one is to blame. The system is designed to limit lawsuits and thus reduce insurance costs.
What does personal injury protection cover?
If you've been involved in an accident and you do not live in a no-fault state, the other driver's insurance company typically pays for some or all of your medical care if you're injured, up to his policy's limits and if the accident is determined to have been his fault. Otherwise, your insurance company will pay if you caused the accident, subject to your own policy's limits — but usually only if you purchased medical payments coverage.
If you live in a no-fault state, your personal injury protection — referred to as PIP coverage — pays for your medical care regardless of who caused the accident, up to certain dollar limits set by state law. Carrying PIP coverage is mandatory in no-fault states, and it's often limited to paying medical bills incurred by you or your passengers. It doesn't allow you to file a claim against your own insurance company for non-economic damages, things that don't actually cost you cash out of pocket, like pain and suffering.
You don't have a right to sue
Except in very limited circumstances, drivers in no-fault states do not have the right to sue the other driver or his insurer for personal injury damages, even if the other driver was at fault. Exceptions exist if your injuries are particularly grievous, however. The determination of what constitutes grievous can vary from state to state, and it's often set by dollar limits. If the cost of your medical care exceeds a certain threshold, you can sue. These guidelines are called tort liability thresholds.
Property claims are treated differently
No-fault insurance doesn't address other expenses commonly associated with an accident. PIP coverage has no bearing on property claims, either damage to your own vehicle or to the other driver's car. You must carry collision and should have comprehensive coverage to compensate for repair and replacement costs for your vehicle. As a practical matter, your lender will likely require that you do so as a condition of your auto loan if you're driving a vehicle that's not yet paid for.
What are the no-fault insurance states?
Do you live in a no-fault insurance state? As of 2016, there were nine of them: Florida, Hawaii, Kansas, Massachusetts, Michigan, Minnesota, New York, Utah and North Dakota. No-fault insurance is the law in the District of Columbia and Puerto Rico as well. Another three states — New Jersey, Pennsylvania and Kentucky — give policyholders the option of purchasing this type of coverage, presumably at reduced premium rates.