How Does No-Fault Auto Insurance Work?

Last Updated on March 4, 2023

No-fault insurance is a type of car insurance required in certain states in America. What is no-fault auto insurance? Which states require no-fault insurance? Today, we’re explaining everything you need to know about no-fault states and no-fault insurance.

What Is No-Fault Auto Insurance?

No-fault auto insurance is a type of car insurance where your insurance company automatically pays you for certain damages, regardless of fault, up to a certain limit.

Sixteen states in the United States have no-fault auto insurance laws.

All provinces in Canada have some type of no-fault auto insurance available to accident victims. Other countries have governmental systems that provide no-fault insurance to accident victims.

No-fault auto insurance exists in contrast to a tort insurance system. Under a tort insurance system, someone will be found at fault for a collision – even if the fault is determined to be 50/50.

Which States Have No-Fault Auto Insurance?

Sixteen states across America have no-fault auto insurance laws. Those states include:

Certain states also make no-fault insurance optional. Those states include New Hampshire, South Dakota, Texas, Virginia, Washington, Wisconsin, and the District of Columbia.

How Does No-Fault Auto Insurance Work?

The specific laws regarding no-fault auto insurance vary between states.

Florida, for example, is a no-fault car insurance state, although its requirements differ from other states. In Florida, all drivers are required to have personal injury protection, or PIP. This is a type of no-fault auto insurance. You can use PIP when you are injured in an accident – regardless of whether you or the other driver were at fault.

In other states, drivers can choose between the type of auto insurance they wish to use. Drivers in Pennsylvania, New Jersey, and Kentucky, for example, can choose whether they want to have traditional tort insurance or no-fault coverage. These states are often referred to as “choice no-fault states.”

Michigan drivers, meanwhile, pay the highest rates in the United States for car insurance. Many attribute the high rates to the fact that Michigan has comprehensive no-fault auto insurance laws. Under Michigan laws, drivers are required to purchase and carry three types of insurance on every vehicle, including personal injury protection (PIP), property protection insurance (PPI), and residual bodily injury and property damage liability (BI/PD).

No-fault car insurance essentially works the same way across states: in no-fault states, insured drivers will receive coverage from their own insurance company even if they weren’t at fault for the accident. A policyholder and his or her passengers will be reimbursed by the policyholder’s own insurance company without needing to identify which driver is at fault.

What’s the Drawback to No-Fault Insurance?

There’s one major drawback to no-fault car insurance: drivers are restricted in their right to seek recovery through the civil justice system for losses caused by other parties.

In more straightforward terms, no-fault insurance means you can’t sue the other driver. Drivers are exempt from liability for causing bodily injury.

In states without no-fault insurance systems, the insurance company of the at-fault driver would cover the losses caused by the at-fault driver – including the medical costs of passengers, the costs of vehicle repairs, and other losses.

Another drawback of no-fault car insurance is that it typically leads to higher insurance prices. The states with the highest car insurance premiums in the country are Michigan and Florida, both of which are no-fault states.

What Does No-Fault Insurance Cover?

No-fault insurance covers all of the following for you and your passengers:

  • Your health insurance deductible
  • Expenses that exceed your health insurance coverage limits
  • Lost income and wages (this isn’t automatically covered in all no-fault states)
  • Essential services like child care or cleaning that you cannot perform due to your injuries
  • Funeral expenses

What Doesn’t No-Fault Insurance Cover?

It’s important to note that in states with no-fault car insurance, drivers and passengers are covered against losses like medical expenses and lost wages. However, any damage to the driver’s vehicle is not automatically covered under no-fault car insurance. Drivers need to purchase collision and comprehensive coverage – just like they would in any state – to ensure their own vehicle is protected.

No-fault insurance also doesn’t cover damage to another person’s property. This is why some states require property damage liability insurance, which helps pay for damages you cause to another person’s vehicle or property.

Another final thing that isn’t covered by no-fault insurance is medical expenses beyond your coverage limits. No-fault insurance might only provide, say, $10,000 in coverage. If your medical bills exceed that, then they won’t be reimbursed. However, some no-fault insurance states have an exception to this rule and allow you to file personal injury lawsuits against other drivers if your medical bills exceed a certain limit.

Final Thoughts On No-Fault Car Insurance

No-fault car insurance has plenty of pros and cons. No-fault car insurance laws also vary widely across the United States. Today, 12 states across America require no-fault insurance. Talk to your insurance agent to see if you need this type of coverage, and then compare insurance plans in your state to find the right no-fault car insurance policy for your unique needs.

James Shaffer
James Shaffer James Shaffer is a writer for and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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