What does no-fault state mean in car insurance?

Figuring out what car insurance coverage you need is hard. Depending on which state you live in, you'll need a certain type of car insurance. If you live in a no-fault state, it doesn't matter who's at-fault for an accident and you'll both submit claims to your own auto insurance companies.

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Tonya Sisler has a Bachelor’s Degree from the University of South Carolina in Journalism and has worked for 15+ years in management. She has also completed a proofreading certification and is currently a professional writer.

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Brad Larson has been in the insurance industry for more than a dozen years. He started out as a claims adjuster for a national carrier. He has since switched to the agency side of the business. Brad is licensed in all P&C lines.

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Reviewed by Brad Larsen
Licensed Auto Insurance Agent Brad Larsen

UPDATED: Mar 13, 2022

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Things to Know

  • A no-fault state is where no matter who’s at fault, medical claims are submitted to each driver’s own car insurance company.
  • In a no-fault state, drivers are required to have Personal Injury Protection (PIP).
  • There are pros and cons of no-fault insurance vs tort liability, but your coverage depends on where you live.

The necessary coverage for car insurance varies depending on where you live in the United States. There are different types of insurance programs offered to drivers according to what state they reside in. It is important to know what kind of auto insurance you need because it could cost you a lot of money if you are not correctly insured. One of the common types of car insurance systems is called no-fault. If you live in a no-fault state, then both people involved in an accident are compensated by their car insurance company. 

What is a no-fault car state?

You are probably wondering what no-fault really means when it comes to car insurance. Well, it is actually a type of system intended to lower insurance costs to policyholders by not allowing them to sue unless there are severe injuries, or the costs reach a certain level. Regardless of fault, each person’s own insurance company is responsible for paying for the necessary costs. Car insurance laws are delegated at a state level, which means that each state has its own rules and requirements for auto insurance coverage.

No-fault

Not every state is considered to be a no-fault state, but the ones that are, require their drivers to carry Personal Injury Protection (PIP) if they plan on being out on the road. PIP coverage varies from no-fault state to no-fault state, but usually covers medical bills, lost wages, funeral costs, and more out-of-pocket expenses.

If you are trying to sue another driver in a no-fault state, certain conditions must be met depending on what state you live in. It can mean terms like severe disfigurement or death are being thrown around. It can also mean that a monetary threshold has to be met. No-fault only extends to injuries and medical costs. If you are trying to get damages fixed, the responsibility falls on the driver that caused the accident.

Choice no-fault

In some states, drivers have the choice between a no-fault insurance policy or the traditional tort policy. Currently, only three states have a choice no-fault system: Pennsylvania, New Jersey, and Kentucky.

Tort liability

Tort liability is more traditional than the no-fault car insurance system as there are no restrictions when it comes to lawsuits. If you caused the car accident, then the other driver or passengers can sue you for their injuries and medical costs. In some of these states, a PIP plan might be required or you have the option to add on PIP coverage to your current policy.

In the table below, you will find some key differences between no-fault and tort liability states.

No-fault Tort liability
Insurance pays for medical bills using Personal Injury Protection (PIP) coverage. Only require liability insurance.
Property damages are based on who is responsible for the accident. You don’t have to file a claim with your insurance if someone else is responsible for the accident, which saves deductible costs and higher premiums.
Limits lawsuits from car accidents. Lawsuits are not limited.
Insurance coverage is more expensive. Insurance coverage is more expensive because of extra coverage.

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What states fall into the no-fault category?

There are 12 “true” no-fault states, along with U.S. territory Puerto Rico, that require drivers to have Personal Injury Protection.

No-Fault State PIP Coverage Threshold
Florida $10,000
Hawaii $10,000
Kansas $4,500
Kentucky $10,000
Massachusetts $8,000
Michigan $50,000
Minnesota $40,000
New Jersey $15,000
New York $50,000
North Dakota $30,000
Pennsylvania $5,000
Utah $3,000

How much does no-fault insurance cost?

As stated above, one of the less enticing things about living in a no-fault state is the fact that the coverage is more expensive than coverage from a tort liability state. This is because more coverage is required in these states. No-fault state insurance policies average about $900 annually, but your exact cost depends on a few factors. These factors include what state you live in, how much coverage you want, the car insurance company that you choose, and your past driving history.

What are the pros and cons of no-fault insurance?

Pros:

  • Fewer lawsuits. In order to sue in a no-fault state, there has to be severe injury, death, or a certain cost must be met, so the percentage of lawsuits is low in comparison with a tort liability state.
  • Wide coverage. No-fault insurance covers a wide variety of expenses including medical bills, childcare, and household services.
  • Fast payouts. Since fault is not factored into which driver’s insurance claims are filed with, medical bills for drivers can be paid quickly after an accident happens.

Cons:

  • Higher costs. Premiums for no-fault states are higher than those in tort liability states because more coverage is required and fraud tends to happen more often.
  • Higher percentage of traffic deaths. There is a higher fatality rate in no-fault states.
  • Limited legal options. In a no-fault state, you can only sue at-fault drivers if you are seriously injured, or have high expenses related to the accident.
  • Fewer penalties. At-fault drivers face less penalties if they injure a person in an accident.

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What’s an example of how no-fault insurance works?

Let’s say that your friend, we’ll call him Sam, gets into an accident in New York, a no-fault state. He doesn’t slow down fast enough at a red light and rear ends the driver in front of him. The other driver suffers an injury that costs $5,000 in medical bills. Despite the fact that Sam is clearly the one at fault in this situation, the other driver submits the claim to their own insurance and they pay for the driver’s medical bills. On the other hand, Sam is responsible for paying for the damages costs to the other driver’s car since he is at-fault for the accident.

If Sam lived in a state that runs on a tort liability, the other driver (or their insurance company) would submit a claim to Sam’s insurance. Then, Sam’s insurance would cover the cost of the other driver’s medical bills. If Sam in uninsured, or the payout isn’t enough, the other driver can sue.

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