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Do You Live in a No Fault State or a Tort Law Insurance State?

In a no-fault state, fault has no bearing when seeking compensation after an auto accident. Injured parties with no-fault insurance are required to seek compensation through their own personal insurance. However, there is no true no-fault state: At some point, every no-fault car insurance state's car insurance laws allow you to seek legal redress.

In addition to the basic liability insurance package required by every state's insurance laws, a no-fault state requires its drivers to purchase their own personal medical insurance, called personal injury protection (PIP). No matter who is held responsible for your car accident, PIP coverage will help to pay your medical bills and, sometimes, lost wages.

PIP coverage only adds about $50 to the monthly cost of your car insurance policy.

What Does Personal Injury Protection Cover?

PIP covers your own medical expenses and those of your passengers as the result of a car accident. It also covers injuries you or one of your family members sustain as a pedestrian as the result of a car accident. What's more, PIP covers injuries sustained from a hit-and-run motorist, whether you are in your car or walking across the street.

If your PIP coverage runs out, every no-fault state allows you to sue the negligent party. If you win in court, the negligent party's bodily injury liability coverage will pick up the slack.

What Are the Advantages of Personal Injury Protection Coverage?

There are two reasons why no-fault insurance—in other words, personal injury protection (PIP)—is a great idea. First, PIP coverage pays for your medical bills when an at-fault motorist has little or no insurance. In fact, in the United States, one out of eight drivers does not have car insurance, so this risk is ubiquitous, constant and not to be dismissed.

The other occasion PIP coverage comes in handy is when you yourself are the at-fault driver. If you were to carry only the state-mandated liability coverage, you as the at-fault motorist would not be eligible for compensation for any injuries you personally sustained as a result of the accident.

In either case, a broken leg still costs about $7,500 to fix and a three-day hospital stay still costs about $30,000. In this light, PIP insurance is one of the insurance products all drivers should seriously consider, whether or not they live in a no-fault state.

What Doesn't PIP Cover?

PIP coverage and similar auto insurance policies are no substitute for health insurance. It only covers injuries sustained in the event of an auto accident.

PIP insurance is not liability insurance. If you live in a no-fault state, you still need to purchase your state's mandated bodily injury liability coverage and property-damage coverage. In the event of an auto accident, this insurance policy could save you from financial ruin.

PIP covers no funeral costs in the event of a car accident in which a driver experiences their own death.

Finally, neither PIP nor liability insurance pays for any damage to your own car. To cover that risk, you would need to buy full coverage insurance, which comprises both comprehensive and collision coverage. That's why PIP insurance is a good idea, whether or not you live in a no-fault state. Comprehensive and collision are add-on insurance products in every state.

Which States Are No-Fault States?

In the United States, no-fault auto insurance came to prominence in the early 1970s as a way to dramatically decrease court cases associated with the often lengthy legal process of assigning fault, or liability, after a car accident. By limiting litigation after an accident, no-fault states hope to keep down the cost of car insurance coverage for their licensed drivers.

In the United States, the District of Columbia, Puerto Rico and 12 states are considered to be no-fault states when it comes to an accident:

If you live in the District of Columbia, Puerto Rico or one of these states, your auto insurance policy must include no-fault insurance. In tort liability states, PIP is not required and is considered to be add-on coverage.

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Which No-Fault States Still Require PIP?

Even though Arkansas, Delaware, Maryland, Oregon and Texas are tort liability states—that is, all five have a fault-based system that allows an injured party to pursue compensation from any parties who were at fault for the accident—they still require PIP coverage.

Even though each of these states has a tort liability policy that protects accident victims after car accidents, each state requires that state's insurance companies to pay the medical bills of its clients. When you file a claim after a car crash, the insurance companies will pay those bills up to a policy's limit but no more.

No-fault States vs. Tort States

If you live in a state that has a tort liability system, you're buying coverage to reimburse another driver in case you cause a car accident. Tort liability—in French, "tort" means "twisted," thus "wrong"—demands the at-fault driver in an accident pay for any losses incurred by the other driver, including medical fees, pain and suffering, and property damage.

But most no-fault states blend both no-fault coverage and tort liability insurance. Which means there is no true no-fault state: At a certain point, every no-fault state allows a driver to initiate litigation on a tort liability basis. No at-fault state is a true no-fault state. So, when it comes to tort liability and a tort liability threshold, states take one of three approaches.

"Verbal Threshold" No-Fault States

All no-fault states have a verbal threshold, but only five have strictly verbal thresholds: Florida, Michigan, New Jersey, New York and Pennsylvania. The verbal threshold means a lawsuit cannot be brought against a negligent party unless the victim's injury results in a wrongful death or the partial or complete loss of a body member or function. But New York is different from, say, Michigan, so the savvy person will check out their state's laws before they have an auto accident.

"Monetary Threshold" No-Fault States

In these seven states, a lawsuit can be brought against a negligent party when the liability exceeds a certain dollar amount: Hawaii ($5,000), Kansas ($2,000), Kentucky ($1,000), Massachusetts ($2,000), Minnesota ($4,000), North Dakota ($2,500) and Utah ($3,000).

"Choice" No-Fault States

New Jersey, Pennsylvania and Kentucky are "choice" no-fault states. In a choice no-fault state, motorists are given the option to choose between a fault or a no-fault policy for their insurance. No matter which choice no-fault state they live in, a motorist's choice is locked in until the next time they choose to renew their policy or sign up for a new policy.

In New Jersey and Kentucky, if a driver does not willfully choose an option, they are locked into a no-fault policy. In Pennsylvania, however, the default is a fault-based policy.

PIP vs. Uninsured/Underinsured Motorist

PIP insurance and uninsured/underinsured-motorist (UM/UIM) insurance for bodily injury both pay for medical bills, lost wages, and pain and suffering. However, no-fault and UM/UIM insurance are different when it comes to fault, benefits and the claims process after you've had a car accident. When you file a claim for injuries after an accident, these differences can really make a difference.

If No-Fault Insurance Is Required

PIP insurance is required in no-fault states as well as the fault-insurance states of Arkansas, Delaware, Maryland, Oregon and Texas. In any other so-called tort state, this no-fault insurance is considered to be an "add on."

If Fault Is Assigned

PIP is no-fault insurance, meaning you have coverage no matter who caused the crash. To receive full benefits under UM/UIM insurance, you must prove the other driver caused the accident.

When You Get Your Benefits

PIP coverage allows you to immediately seek medical treatment after an accident with no worry about out-of-pocket costs, which is not the case with UM/UIM. (Note: Receiving immediate medical treatment for your injuries is an important step in building a personal injury claim, so you will want to use your PIP coverage as soon as possible.) Unlike PIP, UM/UIM covers funeral expenses.

When You File a Claim

UM/UIM claims create an adversarial relationship with your insurance company. When you present your insurer with a UM/UIM claim, the insurance company stands in place of the at-fault driver who caused your accident and now has interests in opposition to your own. This is not the case with PIP insurance.

Case Study: Personal Injury Protection in Florida

As you might know, Florida is a "verbal threshold" no-fault car insurance state, which means a lawsuit cannot be brought against a negligent party unless the victim's injury results in a wrongful death or the partial or complete loss of a body member or function. According to the laws of Florida, drivers must buy the following types of insurance:

  • $10,000 worth of bodily injury coverage per person
  • $10,000 worth of bodily injury coverage per auto accident
  • $10,000 worth of property damage per accident
  • $10,000 worth of PIP

The average insurance rate in Florida is $214. According to insurance-comparison company SmartFinancial, State Farm has the lowest monthly rate at $179.54, and Unitrin has the highest monthly rate at $479.99. But rates will be depending on the individual person.

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Pros and Cons of No-fault Auto Insurance

The Pros

Efficient Claims Payments 

Because there's no fighting about who was at fault, claims are paid out fast and without any hiccups.

Fewer Lawsuits 

Because no one can sue another driver in a no-fault state, courts in no-fault states are less burdened with car accident lawsuits. Drivers are free to take care of damages without hiring attorneys to assign fault.

Lower Insurance Premiums 

Because it's less costly overall to take care of damages and injuries, some people say no-fault state residents have lower insurance premiums, even when they've been in an accident. There is really no clear-cut study on which type of insurance law affects premiums overall. Also, every state has variations on other laws relating to auto insurance so it's hard to tell if premiums fall or rise based on PIP alone.

The Cons

Limits on Litigation

No-fault car insurance states put limits on when you can sue: While this helps keep costs down, it can be limiting for people who feel the compensation was too limited for the extent of their losses.

Little Incentive To Avoid Accidents 

Some people argue that in no-fault states there is no incentive to be a better motorist because accidents are settled without much discrimination. Because you can't sue and you assume responsibility when an accident is not even your fault, some people disagree with no-fault laws.

No Savings on Premiums 

For some people not only are premiums not lower but they are higher. There is really no clear-cut study on which type of insurance law affects premiums overall. Also, every state has variations on other laws relating to auto insurance so it's hard to tell if premiums fall or rise based on PIP alone.

Does No-Fault Law Invite Fraud?

According to the Insurance Information Institute, "One of the disadvantages of having a 'dollar target' for medical expenses is that it may encourage the submission of fraudulent claims. In addition, unless the law includes a provision that enables the threshold to be adjusted to keep pace with inflation, its effectiveness in curbing litigation is gradually eroded."

According to the Insurance Information Institute (III), "One problem in states with higher-than-average PIP benefits is that dishonest providers of professional services have found ways to abuse and cheat the system, pushing up the cost of auto insurance." The III goes on to say, "In a number of no-fault states, PIP coverage is being exploited by fraud rings that include phony pain clinics and corrupt physicians, chiropractors and lawyers, particularly in states where PIP benefits are generous."

Luckily, the auto insurance system is introducing new insurance laws, including Michigan,

According to the Florida Office of Insurance Regulation, "In recent years, the number of drivers and auto accidents has remained relatively constant, but the amount of PIP claims and PIP payments has skyrocketed. The National Insurance Crime Bureau lists Florida as having several cities reporting the highest amount of 'questionable claims' nationally." To address this issue in an effort to lower Florida driver premiums, Florida passed HB 119: Personal Injury Protection (PIP) for Auto Insurance Fraud.

These laws protect a person from paying higher rates.

SmartFinancial Can Help You Find the Best, Cheapest Auto Insurance Despite No-Fault Law

No matter the auto insurance laws that govern your state, SmartFinancial can help you to find the best, cheapest car insurance for your budget and car insurance requirements. Whether you're looking for liability insurance, no-fault auto insurance or add-on insurance, SmartFinancial will match you with the insurance company that can best meet your budget and coverage needs. When you have a car accident, you want the right insurance company behind you with the right motorist coverage.

SmartFinancial uses artificial intelligence, machine learning and data-carving algorithms to compare every pertinent policy in your area. For free insurance quotes, enter your zip code or speak to a licensed SmartFinancial agent at 855-214-2291. You can do almost all of it through the internet and get your declarations page sent to you in an email. It's that easy!

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