The Facts About No-Fault Insurance

Posted on Nov 17th 2009, 12:56 am, under Are You Covered?

No-fault insurance can be a misleading or confusing term. Contrary to what the term implies, it does NOT mean that drivers will not be found at fault in accidents; some or all parties involved will always have to take responsibility, whether full or partial. 

What no-fault insurance really means is that benefits are paid to insurance policy carriers, no matter who caused the auto accident. This means that you get financial assistance (up to a specified limit) when you need it most, immediately after the accident, without having to wait for the insurance companies of those involved to decide who was ultimately responsible for the damages. In return, you surrender some of your rights to sue the other party.

This special form of insurance is available in many countries, but only the following thirteen US states have adopted it: Colorado, Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.

There are several benefits to having a no-fault system. These include the aforementioned faster payment of claims, elimination of costly and time-consuming lawsuits, lower insurance rates (legal fees count for 12 percent of premium costs), and accessibility to people with less financial means (due to the lower rates).

However, no-fault insurance also has its drawbacks. Critics argue that most of its benefits don't really get applied in reality, and that no-fault encourages bad drivers since they can't be sued for the damages they cause. It also doesn't offer compensation for non-economic damages, such as paralysis, pain, and suffering. In addition, insurance premiums in no-fault states average at 25 percent higher than those in traditional insurance states, thus eliminating any savings from the lower rates.

The thirteen states listed above have adopted a modified no-fault system, meaning that you will be automatically compensated for damages up to an amount specified in the policy, but you may still sue for non-economic damages if these exceed a particular limit. It can often be a complex issue. You can get more detailed information about no-fault auto insurance here and here. If you live in a state that requires no-fault insurance, you may also want to ask your attorney for professional advice on this special form of insurance.