No-Fault Auto Insurance: Definition & Example

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

If you drive, you may be required to purchase car insurance. Some states offer a special type of insurance called no-fault insurance. Learn more about it in this lesson.

Definition of No-Fault

Misty and Molly are good friends from different states. Misty lives in California and Molly lives in Michigan. Misty tells Molly that she recently got into an accident and had to deal with the other driver's insurance company. Molly tells Misty that she too got in an accident but she gets everything done through her own insurance company.

Why the difference? Molly lives in Michigan, where she is required to carry no-fault car insurance, which is a bit different than the traditional at-fault car insurance that is available in California. Let's take a closer look at what no-fault car insurance is all about.

If you drive and you live in the United States, most states require you to have car insurance, which covers you when you get in a car accident. Several states, though, offer what is called no-fault car insurance. This type of car insurance pays you for any damage no matter who is at fault.

Because no-fault insurance pays you no matter who is at fault, no-fault insurance limits your ability to sue, meaning your damages have to be beyond a certain level before you can sue the other party. This means that as long as the damages are below a certain level, you always deal with your own insurance and never have to deal with the other driver's insurance.

Who Offers It

Currently, twelve states in the United States offer no-fault car insurance. The states are:

  • Florida
  • Hawaii
  • Kansas
  • Kentucky (optional)
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey (optional)
  • New York
  • North Dakota
  • Pennsylvania (optional)
  • Utah

No-fault car insurance is optional in three of these states: Kentucky, New Jersey, and Pennsylvania. What this means is you can choose to purchase no-fault car insurance or at-fault car insurance. The major difference between no-fault car insurance and traditional at-fault car insurance is that you can sue for any amount with at-fault car insurance. There is no limitation to sue. However, in the other nine states, no-fault car insurance is the only option.

What It Covers

So, what exactly does no-fault insurance cover? It gives you Personal Injury Protection no matter who is at fault. With Personal Injury Protection, you get paid whether an accident is your fault or not. You won't have to worry about the other driver arguing the accident. If you get hurt, your own insurance will pay for it. This differs from other types of car insurance policies in which your insurance pays for injuries to others if you are at fault.

Sometimes, no-fault car insurance policies may also cover other costs associated with a car accident, such as lost wages. But this additional benefit depends on the policy and the state that you live in.

What It Doesn't Cover

When it comes to property damage, no-fault car insurance doesn't cover damage to your car in accidents. So, if your car door is broken after an accident, your no-fault car insurance policy won't cover it. You would have to sue the other party involved in the accident. But, like all other car insurance policies, you have the option to purchase additional collision insurance, which will cover your car if it is damaged in an accident.

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