Twelve states currently have what’s known as no-fault auto insurance. In these states, your own car insurance policy provides reimbursement for your medical bills and lost wages, regardless of who is at fault in a car accident.
Let's examine how no-fault works, what states have these systems in place, and why the insurance industry developed no-fault as an alternative to traditional tort-liability insurance.
How does no-fault insurance work?
With no-fault, your car insurance policy includes a coverage called personal injury protection (PIP). If you’re injured in an accident, you can file a PIP claim with your own insurance company. They’ll then reimburse your medical costs and lost wages up to a dollar amount limit, according to the terms of your policy. Laws in no-fault states require drivers to have at least a minimum amount of PIP coverage.
An essential feature of no-fault auto insurance is the limitation of your right to sue or file claims against other drivers for your pain and suffering. Depending on the law in a no-fault state, a driver involved in an accident can sue only under certain conditions.
- In states with a verbal-tort threshold, you can sue if the injury falls into one of the following categories:
- Death
- Disfigurement
- Fracture
- Dismemberment
- Loss of a fetus
- In states with a monetary-tort threshold, you can sue once your medical expenses or lost wages meet a specific dollar amount set by state law.
No-fault insurance is fundamentally different from the traditional tort-liability system. With tort liability, the insurance company for the at-fault driver pays the medical bills and lost wages of the not-at-fault driver and their passengers. Tort liability also has no limitations on lawsuits.
States with no-fault insurance
There are currently 12 states with no-fault car insurance.
| State | Minimum PIP coverage | Threshold for lawsuits |
|---|---|---|
Florida | $10,000 per person | Verbal |
Hawaii | $10,000 per person | $5,000 |
Kansas | $4,500 per person | $2,000 |
Kentucky | $10,000 per person | $1,000 |
Massachusetts | $8,000 per person | $2,000 |
Michigan | $50,000 per person | Verbal |
Minnesota | $40,000 per person | $4,000 |
New Jersey | $15,000 per person, with up to $250,000 for life-altering injuries | Verbal |
New York | $50,000 per person | Verbal |
North Dakota | $30,000 per person | $2,500 |
Pennsylvania | $5,000 per person | Verbal |
Utah | $3,000 | $3,000 |
Modifications to the no-fault system
Several states have modified their systems slightly from what’s described above.
If you’re in a choice no-fault state, you can opt for either a no-fault policy with PIP or a tort-liability policy. Current choice no-fault states include Kentucky, New Jersey, and Pennsylvania.
If you’re in a state with an add-on no-fault system, you can add PIP to your policy and receive reimbursement from your own insurance company, but you have no restrictions on your right to sue another driver. Add-on no-fault states include Arkansas, Delaware, the District of Columbia, Maryland, New Hampshire, Oregon, South Dakota, Texas, Virginia, Washington, and Wisconsin. As the insurance industry does not consider these states to have a “pure” no-fault system, they’re not included in the table above.
Why no-fault insurance exists
No-fault auto insurance was introduced in the 1970s to help limit lawsuits and speed up the amount of time injury claimants have to wait before receiving payment. Because the determination of fault in an accident is usually irrelevant, insurance companies simply pay the PIP claims their policyholders are owed. This keeps many injury claims out of the courts, saving time and potentially a lot of hassle for claimants.
Pros and cons of no-fault car insurance
In some ways, no-fault insurance has fulfilled its original promise. But the system does come with some drawbacks. If you’re in a no-fault state, you’ll want to be familiar with these pros and cons.
Pros:
- Speeds up the claims process. With no-fault, you start receiving insurance payments immediately, rather than waiting for opposing insurance companies to hash out which driver is at fault in an accident.
- Broad coverage. With no-fault, you don't have to worry about suing another driver, including those who may have little or no coverage. Your own insurance policy pays, regardless of which driver is at fault in an accident.
Cons:
- Insurance typically costs more. Because you’re required to carry PIP — an extra coverage — your car insurance policy may cost more than in states with traditional tort liability systems.
- Higher incidence of insurance fraud. Unfortunately, no-fault systems tend to encourage insurance fraud. This can contribute to higher insurance costs for all drivers in no-fault states.
- Limitations of your legal options. You can only sue another driver in no-fault states if your injuries meet certain thresholds.
No-fault insurance and your policy
Contact your insurance agent or company if you're in a no-fault state and want to understand better how the system works through your own car insurance policy. They can walk you through the ins and outs of your coverages and explain what you can expect when you file an injury claim.
Frequently asked questions
Is no-fault insurance the same as full coverage?
No-fault is not the same as full coverage car insurance. Your no-fault PIP coverage pays only for medical bills and lost wages if you’re injured in an accident. For a “full coverage” policy, you’ll also need liability coverage for bodily injuries and physical damage, along with comprehensive and collision coverages.
Is no-fault insurance cheaper?
Policies in no-fault insurance states tend to be more expensive because of the addition of PIP coverage at mandated minimum levels. Two no-fault states, Michigan and Florida, were the number one and number three most expensive states for car insurance in 2020.
Is no-fault insurance optional?
Three of the 12 no-fault states, Kentucky, New Jersey, and Pennsylvania, have what’s known as choice no-fault systems. In these states, PIP is an optional coverage only. The remaining nine no-fault states require drivers to have PIP coverage.
Does no-fault insurance cover theft?
No-fault insurance (PIP coverage) does not cover the theft of a vehicle. To receive reimbursement for a stolen vehicle, or for items stolen out of a vehicle, your policy should include comprehensive coverage.
Does no-fault insurance cover car damage?
Car damage is not covered with no-fault insurance (PIP coverage). If your car is damaged in an accident in which you're at fault, you can file a claim for reimbursement against your policy's collision coverage. If the other driver is at fault, their physical damage liability coverage would pay to repair or replace your car.