What is No Fault Insurance?

Baseball, apple pie, and lawsuits. Let’s face it. America is a sue-happy nation, which unfortunately really drives up the cost of insurance for the rest of us. Every year insurance companies pay out millions of dollars in insurance claims, but what’s surprising is more money is spent on defending the claims than on the damages themselves.

In an effort to reduce the amount of money spent defending claims and to minimize bogus lawsuits, insurance companies have developed “no fault insurance” in some form or another in nearly every state. The gist of no fault insurance is that you don’t need to prove fault or negligence after an accident in order to collect money for damages. Your insurance company simply pays your claim instead of suing the other driver’s insurance company.

In some true no fault states like Florida, you are even restricted from filing a lawsuit in the event your insurance company pays for your damages. However, it is important to note the claim must typically be under a certain dollar amount, or for specific injuries. If the monetary threshold is surpassed, more than $2,500 for example, you have the right to seek compensation from the negligent driver for damages resulting from the accident they caused rather than having your insurance pay for the damages. In states where the threshold is based on certain types of injuries rather than dollar limits, the law will allow you to sue the person who caused the accident for specified injuries.

Let’s look at an example: You live in a no fault state. You are involved in a minor accident caused by another driver bumping into you at a stoplight. Your bumper is slightly crunched, costing $600 to repair. You visit the hospital to be sure you have not suffered any damage to your neck from the impact. The cost of your hospital visit is $1,000. Even though another driver caused the accident, your insurance company would be willing to pay for your hospital visit and the damage to your bumper because it’s below the $2,500 monetary threshold.

If the accident were more serious, causing more damage to your car and more serious injury that required a hospital stay, you would be able to seek damages from the other driver’s insurance company depending on the specific laws for your state.

Many states now require that this coverage be offered to you, but it’s not necessary to purchase it. If you already have auto insurance, you may recall signing a waiver stating that it was offered to you in the event you decided not to purchase it. The reason for the waiver is to protect the insurance company and agents from lawsuits filed by their own insured.

Many people choose not to purchase this coverage in order to save money on their insurance. However, when involved in an accident with an uninsured motorist or underinsured driver, and forced to sue or pay for damages themselves, many people often shift the blame to their own company for not advising them to purchase it.

This protects the insurance company and gives you no recourse because you signed a document stating it was explained and offered to you, but you chose not to buy it.

Overall, no fault laws are designed to limit the need to prove negligence, and to speed up the process of paying a claim, which makes consumers and insurance companies happy, while saving us all a little money. As stated earlier, different states have drafted different types of no fault insurance, so be sure to research rules specific to your area.

You may also be wondering about the specific benefits of this type of insurance coverage. Let’s take a look. Typically, no fault insurance is added to your liability policy in the form of personal injury protection (PIP) endorsement.