No-fault car insurance: What it is, how it works and why some states have it

What no-fault insurance is and what it's not

No-fault insurance is a legal system where fault doesn't determine which insurance company pays for injuries. It's not a system where no one is found at fault for the accident. Fault is still determined, and property damage liability still falls on the at-fault party. In true no-fault insurance states, the right to sue after an accident is limited, with thresholds for lawsuits.

There are three approaches to no-fault auto insurance:

True no-fault states. No-fault states require you to purchase no-fault insurance. This is also called Personal Injury Protection (PIP) insurance. True no-fault states also restrict your ability to sue an at-fault driver.
Optional or "choice" no-fault states. Drivers in optional no-fault states can go with the no-fault system or opt out and choose a traditional tort-liability policy. If you've opted in, you abide by the same rules as drivers in true no-fault states, meaning your ability to sue another driver is limited. At the same time, other drivers can't sue you for minor collisions either.
Traditional liability with PIP states. Some states allow you to add no-fault (PIP) coverage to your traditional liability coverage. In these states, your insurer covers your injury damages regardless of fault, but there are no restrictions concerning lawsuits.

Which states have a no-fault insurance system?

There are 12 states with true no-fault insurance laws, where personal injury protection is required by law: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah. Of these states, three are choice states, where drivers can choose a tort policy instead (Kentucky, New Jersey, and Pennsylvania. In all of these states, a no-fault insurance policy limits the right to sue except in extreme circumstances, usually with severe injuries. An additional 11 states offer PIP as an optional add-on.

Below we've outlined the no-fault coverage, how lawsuits work, and the average cost of a basic policy in each state.

No-fault insurance by state: Coverage types, lawsuit limits and average premiums
State	Coverage	Lawsuit restrictions	Avg annual Premium
Arkansas	Not required but must reject in writing.	None	$674
Delaware	$15k per person $30k per accident $5k funeral	None	$1,102
Florida	$10k per person	Significant permanent injury required	$1,144
Hawaii	$10k per person	Significant permanent injury required	$739
Kansas	$4.5k per person medical $4.5k rehab $2k funeral $900 per month income $25 per day for household	Significant permanent injury required	$669
Kentucky	$10k per person	$1,000 medical expenses or serious injury	$773
Massachusetts	$8k per person	$2,000 or permanent serious injury	$1,008
Maryland	$2.5k per accident	None	$979
Michigan	Unlimited medical expenses Up to $5,189/month lost income $20/day household	Death or serious permanent injury	$1,131
Minnesota	$20k medical $20k loss of income	$4,000 medical expenses 60+ days disability or serious permanent injury	$745
North Dakota	$30k per person	$2,500 medical expenses60+ days disability	$605
New Hampshire	$15k per person $30k per accident $5k funeral	None	$733
New Jersey	$15k per person $250k severe / permanent injury $2k funeral 80% lost income up to $2k per month $25 / day household	Significant permanent injury	$1,254
New York	$50k per person $2k funeral 80% lost income to $2k/month $25 per day household	Serious injury bone fracture 90+ days disability	$1,182
Oregon	$15k per person	None	$783
Pennsylvania	$5k per accident	Significant permanent injury	$841
South Dakota	No minimum	None	$581
Texas	Not required but must reject in writing.	None	$895
Utah	$3k per person $1.5k funeral $3k death benefit $250 / week lost income $20 / day household	$3,000 medical expenses or permanent serious disability or disfigurement	$734
Virginia	No minimum	None	$719
Washington	Not required but must reject in writing.	None	$838
Washington, D.C.	$25k per person $50k per accident	Drivers have 60 days to decide to take no-fault benefits or sue the at-fault driver.	$1,187
Wisconsin	Not required but must reject in writing.	None	$621

Read our methodology

No-fault insurance in Michigan: A special case

According to Michigan’s Department of Insurance and Financial Services, the state requires drivers to purchase no-fault auto insurance that includes the following:

PIP. This is intended to cover all your medical costs. It pays up to 85% of your lost income for up to three years (up to $5,398 per month) and can pay your family a death benefit in the event you die. PIP benefits include up to $20 per day to purchase household service providers that you must hire due to injury.
Property protection. Your no-fault auto insurance must pay up to $1 million for damage your car causes to property owned by others.
Residual liability. Insured people are protected from being sued except in special situations.

Why do some states use no-fault car insurance?

No-fault insurance is designed to reduce lawsuits, expedite injury claims, and keep car insurance rates low.

In true no-fault states, a lawsuit against the at-fault party can take place only for accidents in which the medical expenses reach a certain threshold or the injuries meet the state's legal definition of "serious." No-fault insurance systems were implemented in an attempt to achieve the following:

Quicker payment of claims
Victim's reimbursement not split with lawyers
Lower insurance rates
Fewer lawsuits to defend and reduced legal costs to insurers
No subsidizing uninsured motorists

No-fault systems have often failed to contain costs and even resulted in higher costs for several reasons:

Fraudulent medical claims
Litigation did not decrease -- instead of suing at-fault drivers, many accident victims switched to suing their own insurers for denied or insufficient reimbursement
High coverage limits led to exorbitant payouts
Bad drivers were not punished sufficiently to change behavior

Today, only a dozen states and Puerto Rico have no-fault laws. Other states modified their laws or returned to traditional tort liability systems.

In a tort state, at-fault drivers in a crash are responsible for paying the other driver's medical expenses. The at-fault driver must also pay for additional damages, such as loss of wages and "pain and suffering." This is usually paid out of your liability, personal injury or medical payments coverageAn auto insurance coverage that provides coverage for medical expenses incurred by you and your passengers in the event of an accident, regardless of who is at fault., depending on state requirements.

How does no-fault auto insurance work?

No-fault insurance applies when you're injured in an auto accident; you file a claimAn insurance claim is a request you make to your insurance company for coverage after your car is damaged or you have an accident. You can file a claim online, by phone, or in writing. with your own insurer for medical and related costs. You don't need to contact the other driver's insurer, file witness statements and police reports or wait for a determination of fault.

The no-fault process works like this:

You are injured in a car accident.
Regardless of who is at fault, you file a claim with your insurer for expenses related to your injuries.
Your insurer reviews your claim and researches the accidents’ circumstances.
Benefits to which you're entitled are paid by your insurer.
You may not sue the at-fault party and he/she may not sue you, unless criteria are met for “serious” damages.

It’s important to note that no-fault is for injuries, not property damage. If your car is damaged by another driver in a no-fault state, you can still make a claim with the at-fault party’s property damage liability insurer.

What does no-fault insurance cover?

No-fault insurance covers medical bills, lost wages, funeral expenses, and other expenses related to injuries in an accident. That can include help with household tasks, such as housework and childcare, if you can't complete them due to your injuries. It covers you and your passengers, no matter who is at fault for the accident.

What doesn't no-fault insurance cover?

No fault insurance doesn't cover property damage, either yours or the other driver's. It also doesn't cover injuries to anyone in another vehicle. To be compensated for property damage, such as repairs to your car and other property, you must file a traditional liability or collision claim and the insurers will investigate and determine who was at fault and who owes whom. If you're not at fault, the other driver's liability policy should cover your damages; if you caused the accident, your own collision coverage should pay.

No-fault restrictions on lawsuits

No-fault laws make it harder to sue for non-economic damages, such as pain and suffering for seemingly minor injuries. If you get whiplash, for example, you're unlikely to meet the threshold for a lawsuit -- soft tissue damage isn't considered a serious injury.

Some states specify the types of injuries that allow you to step outside the no-fault system and file a lawsuit; these are called "verbal" states because the allowed injuries are described in words. Other states set their thresholds at certain levels of medical costs ("monetary" states) or length of disability.

Paying medical costs in a no-fault state

Some states require that you use your PIP benefits to pay medical costs first, then have your health insurer pick up the rest. Other states require you to use your medical insurance first, then use PIP to cover deductibles and non-medical expenses.

In some states, the funds are paid directly to medical providers, while in others, the check goes directly to you.

Will your insurance rates go up after a no-fault accident?

Yes, if you are found to be at fault for the accident, your rates will go up, even in a no-fault state. No fault doesn't mean no one is at fault; it means medical bills are paid by your insurer, no matter who is at fault. Fault is always determined, and the at-fault driver will see higher rates.

What are the advantages of no-fault insurance?

The biggest advantage of no-fault car insurance is that you can get your medical bills paid quickly, without having to wait for insurance companies to determine fault. Since you file with your carrier regardless of who is at fault, claims are processed faster. There is no need for disputes over fault that can delay payment.

No-fault insurance is also meant to discourage lawsuits, which in turn should discourage insurance fraud. However, this has not always been the case in practice. While no-fault insurance does discourage drivers from suing each other, it doesn't always prevent insurance fraud, which is common in some states, with drivers often exaggerating injuries to collect personal injury protection benefits.

How to get cheaper rates on no-fault auto insurance

You can save on your no-fault insurance policy by keeping a clean driving record, bundling home and auto, asking about discounts and by comparing rates from multiple carriers.

Compare quotes. Every carrier calculates rates a little differently, so shopping around is the easiest way to save
Bundle home and auto. Insurance companies offer discounts on both policies when you buy them in the same place
Get every discount. Ensure that every available discount is being applied to your policy
Keep a clean driving record. Safe drivers save money on car insurance, so do your best to avoid tickets and accidents

Methodology

We partnered with Quadrant Information Services to field car insurance rates in all 50 states and Washington, D.C. Rates are based on a state minimum car insurance policy that meets no-fault requirements. They are based on this driver profile: