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No-fault car insurance is a reality in a handful of U.S. states. As a matter of fact, there are 12 states with some form of no-fault insurance; some of them require it while others make it to optional. We’ll take a look at these states as well as the different ways they implement no-fault regulations.
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As you read through the following paragraphs be advised that every state with no-fault regulations does not necessarily implement them exactly the same way. Also be advised there are several different categories of no-fault insurance. That is where we’ll begin our discussion.
Pure No-Fault Insurance
Pure no-fault insurance is a scenario in which each driver involved in an accident is covered for medical injuries by his own insurance company. This coverage extends regardless of who caused the accident. In this system there are no personal injury lawsuits allowed following motor vehicle accidents.
There are currently no U.S. states that employ pure fault auto insurance.
The closest we come to is something known as qualitative no fault insurance. As a side note, the Canadian provinces of Manitoba and Quebec are the only two places in North America where you’ll find pure no-fault insurance.
Qualitative No-Fault Insurance
Qualitative no-fault insurance is what you’ll find in Florida, Michigan, and New York. This type of insurance is very similar to pure no-fault with one exception: some personal injury lawsuits are allowed depending on certain circumstances.
In states utilizing qualitative no-fault insurance, each driver’s insurance company is responsible to pay victims of a car crash only up to the limits of the liability policy carried by the driver. Personal injury lawsuits are only allowed if sustained injuries reach a certain threshold.
For example, New York law considers dismemberment or permanent disfigurement as a serious injury meeting the threshold for a personal injury lawsuit. Someone who lost an arm or leg in an accident caused by someone else would have the legal right to sue.
Quantitative Threshold of No-Fault Insurance
In states that use the quantitative threshold model, the scenario is exactly the same as a qualitative state except for the fact that the threshold for lawsuits is determined by dollar amount rather than a more ambiguous definition of what constitutes a serious injury. States that use this method include Hawaii, Kansas, Massachusetts, Minnesota, North Dakota, and Utah.
Of the seven states, the state of Hawaii has the highest threshold at $5,000.When a driver in Hawaii has an accident his policy pays for his liability up to the limits of his policy. Victims must pay the remainder of their own costs unless they exceed $5,000. Anything over $5,000 is recoverable in court.
The state of Minnesota is second in terms of its monetary threshold at $4,000. North Dakota comes in at $2,500 and the remaining three go down from there.
Choice in No-Fault Insurance
The fourth type of no-fault insurance can be found in New Jersey, the state of Pennsylvania, and Kentucky. Choice no-fault can be a difficult to describe in detail because there are so many different circumstances that come into play. In a nutshell however, the simplest description of this type of insurance is to say it’s a cross between pure no-fault and fault-based insurance.
Just so you don’t get confused, fault-based insurance, also known as tort insurance, is that which forces insurance companies to pay based on the fault assigned by police officers to each participant of an accident. Civil lawsuits flow freely under a fault-based system because no one wants to pay more than he has to.
In a choice system, a driver must decide prior to purchasing his auto policy whether he wants to be covered under a no-fault system or a tort system. Once that choice is made he must stick with it. In New Jersey and Pennsylvania, their fault systems are nearly identical to what’s used in New York.
If a driver chose the fault system in one of those two states, it would be qualitative; i.e. the civil lawsuit threshold would be determined by the state definition of serious injury. On the other hand, Kentucky’s fault system is based on the quantitative method. In that state, the threshold is $1,000.
If a driver chose to go with a tort-based auto policy he would be agreeing to follow all the rules of that system should he be involved in an accident. That would mean an investigation to determine the responsibility of all participants, the likelihood of multiple lawsuits, and the possibility that he might end up not getting any money at all.
Debate Over Which Is the Better Model
As long as both models have existed, there has been plenty of contentious debate over which is better. Proponents of the no-fault system observe that the number of personal injury lawsuits due to motor vehicle accidents is substantially less in those states that use the model. Purely from the standpoint of reducing the workload of civil courts, no-fault insurance does a very good job.
Proponents also suggest that no-fault insurance keeps rates down because insurance companies are less likely to be sued; unfortunately, statistics don’t necessarily bear that out.
For example, Michigan is a no-fault state and it has the second highest rates in the nation. On the other end, Massachusetts has among the lowest insurance rates even though they are also a no-fault state.
Those who believe tort-based insurance is a better model tend to argue that it is fairer to individual consumers. As the thinking goes, assigning blame for the accident and then requiring insurance coverage to pay accordingly assures that everyone involved is treated fairly.
Opponents of the tort system argue and rightly so, that states operating under this system have backlogged civil courts where it could take years to resolve a personal injury claim. They maintain this is not a good use of civil courts because it creates a lot more problems than it solves.
Opponents also claim that states with tort-based insurance have higher rates because of the propensity for lawsuits. Just like the claims on the other side, the statistics don’t always bear that out.
Knowing Your Rights and Responsibilities
The question of fault versus no-fault is one that many Americans don’t give any thought to. They simply buy their insurance policies and go on their way, hoping they never have to use them. While that is certainly admirable, it’s not reality.
Anyone of us can be involved in an accident whenever we’re behind the wheel. That is why it’s important for each of us to know what the laws are in our states as well as what our individual rights and responsibilities are. Otherwise, it’s too easy to be taken advantage of after a car accident.
For example, if you were a New York driver and incorrectly assumed you lived in a tort-based state, it might be easy for someone to intimidate you into paying for an accident of out-of-pocket rather than going through the proper channels. That other driver may hang the threat of a lawsuit over your head and scare you into doing something you’re not legally required to do.
By the same token, if you lived in a tort-based state like Alabama, and you didn’t know you could sue the driver who T-boned you, you may be allowing him and his insurance company to avoid their financial responsibility. That doesn’t make a lot of sense given the fact that you could be left with a mountain of financial problems if your injuries were serious enough.
Consider Your Liability Limits
Regardless of the type of system your state works under it’s a good idea to consider what the minimum liability limits are and whether or not you should purchase more insurance.
Though not set in stone, a common dollar amount for liability insurance is $25,000 per accident victim. That may seem like a lot, but it’s really not.
When you consider the fact that re-constructive surgery for broken bones can run into tens of thousands of dollars, it’s easy to see your liability limit could be exceeded by three or four times after just a moderate accident. You may be left to pay the balance if you lose a court case.
Plenty of financial and insurance experts recommend today’s drivers significantly increase liability limits and/or purchase an umbrella policy. If you own valuable assets, like real estate or securities, doing so is even more important for you. It would be a shame for you to have your assets taken from you after an accident because your insurance policy was inadequate.
It goes without saying that auto insurance is not a simple matter. When we only take 10 minutes to shop around before purchasing the cheapest policy we can find, we’re really doing ourselves a disservice. It pays to know the laws in your state, realistically assess your financial situation, and spend the money on a policy that properly covers you. Buying a cheap and inadequate policy can come back to haunt you later on.
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