Tort and No-Fault Auto Insurance Systems Explained
There are two general types of auto insurance systems in the United States, including tort systems and no-fault systems.
What’s the difference between the two? What are the advantages of tort systems versus no-fault systems? Today, we’re explaining everything you need to know about the two popular car insurance systems.
In No-Fault States, It Doesn’t Matter Who Is At-Fault for the Collision
Generally speaking, in a no-fault insurance system, it doesn’t matter who is at-fault for the collision from an insurance perspective. If you’re involved in a collision and need to make an insurance claim, then your own insurance company will pay that claim – including any damages to your vehicle or medical expenses. Even if the other driver is at-fault for the collision, you still file the claim through your own insurance company.
In other words, drivers in no-fault states are responsible for damages to their own vehicles and their own medical bills after a collision with another driver.
In many cases, drivers in no-fault states are also required to carry personal injury protection (PIP) coverage, which works similar to health insurance. It covers medical expenses if you’ve been involved in a collision.
Since fault doesn’t matter in a collision, courts in no-fault states will not investigate who is at-fault for an accident (in most cases). In some cases, like where the crash was extremely devastating or led to particularly high medical bills or property damages, the court system might investigate fault further.
What Are the Benefits of No-Fault Insurance?
No-fault insurance was first introduced in the 1970s in an effort to combat insurance fraud. Today, some people claim no-fault insurance has led to more insurance fraud and higher costs. Supporters of no-fault insurance, however, argue that there are a number of benefits, including:
- Efficient claims payment
- Reduced load on courts (there’s no need to hire an attorney)
- Lower insurance premiums (theoretically)
Downsides of No-Fault Insurance
- You can only sue in certain instances
- Aside from policy premiums, there’s no incentive to be a good driver
- Insurance fraud can be more common in no-fault states
- No-fault insurance states (like Michigan and Florida) often have notoriously high car insurance premiums
How Does Tort Car Insurance Work?
In a tort auto insurance system or an “at fault” state, the driver who caused the accident is responsible for paying the costs of the accident.
In most accidents, no single driver will be 100% at-fault for the accident. That’s why an investigation will take place to determine who is more at fault. One driver might be 60% at-fault while the other driver might be 40% at-fault. In this situation, the driver who is more at-fault will pay their proportional share of damages.
Each state has its own methods to determine which driver is at-fault, as well as the percentage of fault assigned to each driver.
What Are the Benefits of Tort Auto Insurance?
Supports of tort auto insurance generally argue that their system is more fair. Some of the benefits of the system include:
- Drivers aren’t penalized for being in an accident they didn’t cause
- Fault-driven insurance is a fairer system, where bad drivers are punished and good drivers are not
Downsides of Tort Auto Insurance
- Huge backlog of car accident cases in courts
- High court fees for both drivers and car insurance companies
- Drivers have a huge incentive to commit hit-and-runs and flee the scene
Liability Insurance Versus No-Fault Insurance
Most states require a certain minimum amount of liability insurance on your policy in order to legally drive on the road. These liability limits are often listed as 5/15/10, which means you need $5,000 of coverage per person towards injury-related costs, $15,000 per accident towards injury-related costs (say, when multiple people are involved), and $10,000 per accident in property damage
These are the bare minimum limits required for your liability insurance. Many drivers choose to purchase higher amounts of coverage.
With liability insurance, your policy will pay for the other driver’s expenses when you’re at-fault. This is all liability insurance does: it pays for the medical expenses and property damage of the other driver, the other passengers, and the other vehicle or property.
In most cases, your liability insurance will not cover your own medical payments or damage to your own vehicle. You’ll need personal injury protection (PIP) insurance or collision coverage to cover these expenses.
No-fault insurance states typically require basic minimum amounts of liability coverage, as outlined above. However, they may also require additional insurance policies – like PIP coverage.
When you have PIP coverage, your insurance company will cover medical expenses caused by a car accident, lost wages after an accident, and funeral expenses, among other expenses.
The minimum insurance requirements for no-fault states vary widely. Some states require PIP, while others do not.
Ultimately, there’s a significant difference between states with no-fault insurance systems and tort insurance systems. The difference is significant in terms of the price of car insurance, the limits you need to carry, and other factors. Compare car insurance quotes today to get the best rates regardless of whether you live in a no-fault insurance state or an at-fault state.