What is No-Fault Auto Insurance?

No-fault auto insurance is something everyone living in one of the no-fault insurance states wonders about. Just how does no-fault car insurance work?

There are several quirks to no-fault auto insurance so a clear-cut definition of it is rather tricky. No-fault car insurance is touted as a time saver for getting insurance claims settled quickly. Since it isn't necessary to lay blame on anyone for most insurance claims when those in accidents are covered with no-fault insurance, it should be easy to settle claims. However, this isn't always the case.

No-fault auto insurance is also called personal injury protection or PIP. With this type of insurance, each insurer pays their own policyholder for what are called economic losses. Such losses include medical expenses, lost income or wages, and burial and funeral expenses. On the other hand, no-fault car insurance does not usually pay for so-called non-economic losses such as pain and suffering or emotional distress.

When an accident happens involving two motorists with no-fault auto insurance, each driver's insurer should pay for small claims of their insured. In theory this will lead to quicker settlements since litigation is only necessary for very large claims. In fact, most no-fault insurance actually limits the victim's ability to sue the other driver for physical damages unless they are very severe and come with high medical costs.

Some insurers also limit the amount of benefits paid out or limit the time during which benefits are paid. While some no-fault auto insurance plans have property damage coverage similar to that of conventional policies in place, in some no-fault insurance states, it is necessary to sue for property damage, thus keeping litigation costs high instead of lowering them as promised by no-fault insurance proponents.

Studies show that six out of ten states with the largest premium increases in the years 1998 to 2002 had mandatory no-fault auto insurance systems in place. As a general rule, premiums for no-fault auto insurance are 19 percent more than premiums for personal responsibility insurance.

No-fault auto insurance also has the highest fraud and abuse rates of any type of car insurance available. With no-fault car insurance each accident victim recovers from his own insurer regardless of whether he is to blame or not. This means there are no consequences for bad driving, so in the end all drivers pick up the tab for bad drivers through higher insurance premiums.

To summarize, no-fault car insurance has higher rates, higher abuse, higher fraud, limits the ability to sue, limits benefits, makes victims sue for property damage and in the end, makes good drivers pay higher rates to cover bad drivers.