A small percentage of states in the United States are classified as no-fault states. But, what does no-fault insurance actually mean? Lots of people are misled by the name itself. The term is misleading and causes confusion even for no-fault state residents. Understanding the no-fault laws in your state will make the car insurance claims process much easier and less stressful.
- New Jersey
- New York
- North Dakota
Most state’s no-fault laws pertain only to medical coverage. No-fault laws are intended to reduce costly law suits. Instead of going after the at-fault party’s car insurance policy for medical expenses, your own policy covers you.
Pain and suffering is still open for collecting from the at-fault driver’s insurance policy which is handled through the court system. However, some restrictions do apply. Some states have minimum thresholds of medical claims before they are eligible for pain and suffering law suits. Meanwhile other states have mandated amounts of injury which qualify for pain and suffering compensation, such as disfigurement, permanent disability, or death.
Very Serious Injury or Money Threshold
Florida, Michigan, New Jersey, New York, and Pennsylvania all require very serious injury in order to be eligible for pain and suffering. The remaining no-fault states all have dollar amounts which have to be reached before a law suit can be filed. Hawaii has a medical threshold amount of $5000. Minnesota has a threshold of $4000. North Dakota has a threshold of $2500. Massachusetts and Utah both have a threshold of $2000. And, Kansas and Kentucky both have a threshold of $1000.
Michigan takes No-Fault Further
Michigan’s no-fault laws take no-fault a little further by including physical damage. If you are in a collision in Michigan, everyone's policy covers their own vehicle regardless of fault. If you do not carry collision coverage or have a deductible, the most you can get from the at-fault driver’s policy is $1000. A mini-tort claim will need to be filed against the at-fault driver’s car insurance policy. Plus, Michigan is the only state that requires residents to carry unlimited medical coverage as part of the no-fault law.
Optional No-Fault States
Three states actually allow residents to choose whether they want to be covered under the no-fault law or the more common tort. Kentucky, New Jersey, and Pennsylvania are the states with an option when it comes to coverage. Residents who do not specify what coverage they prefer will automatically be covered under the no-fault law in Kentucky and New Jersey. In Pennsylvania, if you do not specify your preference you will be covered by full-tort.
No-fault Pros and Cons
No-fault insurance does have benefits. It greatly reduces the time it takes to receive compensation for medical expenses because you do not have to go through the full-tort process. Plus, skipping the lawyers saves a lot of money.
Unfortunately no-fault insurance has a couple of weak points too. It leaves the door open to more insurance fraud because the claims process is so simple. It also feels as though the at-fault driver is getting off easy and not held fully accountable for the damages caused.
Whether you live in a no-fault state or a full-tort state, it is important you know how the claims process works.