What Is No Fault Insurance?

No-fault auto insurance is insurance that provides coverage for medical expenses, lost wages and death benefits due to an auto accident, regardless of who caused it. A state that enforces a no-fault insurance system is commonly called a no-fault state. No-fault states also place restrictions on auto accident-related lawsuits, requiring drivers to reach a certain level of medical expenses or injury severity before suing an at-fault driver. Coverages, limits and requirements for filing a lawsuit against an at-fault driver will vary by state.

Keep reading to learn how no-fault insurance works, if it applies to your state and how much it costs.

On This Page

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  What Is No-Fault Insurance?

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  How Does No-Fault Insurance Work?

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  What Does No-Fault Insurance Cover?

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  Which States Have No-Fault Insurance?

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  No-Fault States vs. Tort States

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  How Much Does No-Fault Insurance Cost?

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  No-Fault Insurance FAQs

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  At-Fault or No-Fault, You Need Car Insurance

What Is No-Fault Insurance?

No-fault insurance, also called personal injury protection (PIP), is auto insurance that covers various expenses incurred as a result of a car accident, regardless of who is at fault. Common costs that your insurer may cover include medical expenses (e.g., doctor bills, ambulance fees), loss of income and death benefits (e.g., funeral expenses).

Several states enforce the no-fault insurance system and require that you carry no-fault coverage. If you live in a no-fault state, you will need to meet your state's minimum coverage limits (more on that later).

If your state does not enforce the no-fault insurance system, you may live in a traditional tort state. Drivers in traditional tort states can still enjoy some first-party benefits by purchasing medical payments coverage (Medpay). Similar to PIP, Medpay can cover medical and funeral costs but coverage typically will not extend to loss of of income.

No-Fault Insurance Example

Say you suffer a hip injury after being rear-ended while you were stopped at a red light, an accident in which the other party is clearly at fault. You find that your medical bills total $1,000. Although the other driver is liable for your damages, you can file a PIP claim with your insurance company and your insurer will cover the bill.

No-fault insurance covers medical expenses, loss of income and funeral costs regardless of who is at fault.

How Does No-Fault Insurance Work?

When discussing no-fault insurance, there are three parties referenced:

• First-party: The policyholder (you).

• Second-party: The first party's insurance company.

• Third-party: The other driver(s) involved in the accident.

With no-fault insurance, claims are fulfilled between the first and second parties (you and your car insurance company), even if a third party caused the accident.

One advantage of the no-fault system is policyholders get paid faster. Since your insurance company covers your medical bills even if the other driver caused the car accident, you can skip the tedious process of dealing with the at-fault driver's insurer. If you decide to sue the at-fault driver, your claim may get stuck in the often drawn-out (and inefficient) court system.

Another advantage of the no-fault system is it helps clear courts of minor injury claims. No-fault states help discourage minor or frivolous lawsuits by requiring drivers to reach a certain threshold of financial or medical burden before suing an at-fault driver. There are two types of thresholds:

1. Verbal threshold: The injured party's injuries reach a certain level of severity (e.g., partial loss or function of a body limb).

2. Monetary threshold: The injured party's medical expenses exceed a certain dollar amount.

Using the no-fault state Florida as an example, say you get into an accident and discover your medical expenses total $12,000. Florida's monetary threshold is $10,000. Instead of filing a PIP claim with your insurer and paying the difference out-of-pocket, you may sue the at-fault driver and attempt to claim the full $12,000.

What Does No-Fault Insurance Cover?

No-fault insurance covers medical expenses, loss of income and funeral costs that may arise as a result of an auto accident, regardless of who is responsible for causing it. Your no-fault insurance should include the following coverage:

• Medical expenses (e.g., surgeries, doctor bills, dental treatment, medication, nursing services, ambulance fees).

• Lost wages due to accident-related injuries preventing you from working.

• Funeral expenses

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Which States Have No-Fault Insurance?

Several states are no-fault states, but not all of them require drivers to carry no-fault insurance. Below, we list the different no-fault states and whether they enforce a true, choice or add-on no-fault policy.

"Pure" or "True" No-Fault States

In a true no-fault state, carrying no-fault insurance is state-mandated and there is no way for drivers to "opt out." There are nine true no-fault states:

• Florida

• Hawaii

• Kansas

• Massachusetts

• Michigan

• Minnesota

• New York

• North Dakota

• Utah

Choice No-Fault States

In choice no-fault states, drivers must still carry PIP coverage but can choose between a limited or unlimited right to sue. There are three choice no-fault states: Kentucky, New Jersey, Pennsylvania.

No-fault states help discourage minor or frivolous lawsuits with a PIP coverage mandate.

Add-on No-Fault States

Add-on no-fault states combine aspects of the no-fault and traditional tort systems. Drivers can add no-fault insurance to their existing policy, enjoying first-party benefits in an accident regardless of who is at fault. There is also no threshold drivers must meet before they can sue another driver. Ten states offer add-on insurance:

• Arkansas

• Delaware

• Maryland

• New Hampshire

• Oregon

• South Dakota

• Texas

• Virginia

• Washington

• Wisconsin

No-Fault Insurance by State

Below we've summarized the PIP coverage limits and tort thresholds for each no-fault state.

In choice no-fault states, drivers must still carry PIP coverage but can choose between a limited or unlimited right to sue.

No-Fault States vs. Tort States

States that do not enforce no-fault legislation are called "tort" states. In tort states, the at-fault driver is liable for certain losses the other party suffered in a car accident. We outline some key differences below.

How Much Does No-Fault Insurance Cost?

The cost of an auto insurance policy with no-fault coverage ranges, on average, from $911.97 to $1,566.09 depending on your coverage level. This is based on SmartFinancial's analysis of auto insurance rates for liability-only and full coverage policies from the nine pure no-fault states. Actual rates, however, can vary based on your claims history, age and car model, among other factors.

At-Fault or No-Fault, You Need Car Insurance

The same mandate applies to all 50 states, whether it's a no-fault or traditional tort state — you need car insurance. While meeting your state's minimum requirements, you may want to consider additional coverage to better protect you, your vehicle and your passengers SmartFinancial may help match you with a car insurance company that meets your coverage and budget needs. To receive your free quote, enter your zip code below and answer a few questions.