What is no-fault auto insurance?


No-fault automobile insurance is an alternative method of compensating injured accident victims, which half of the US states have introduced in one form or another. No-fault car insurance provides compensation to individuals who have sustained bodily injuries as a result of an accident, regardless of whose fault it is. Each party involved in the accident gets compensation from their insurance company.

Characteristics of No-Fault Auto Insurance

Each state has its specific no-fault plan characteristics with regards to the benefit amount and the right to sue. No-fault plans can be roughly classified in the following four groups:

  • Pure non-fault plans do not allow injured victims of accidents to sue, no matter how much the claim is. The good news is that no state has adopted a pure non-fault plan yet.
  • A modified no-fault plan allows accident victims to sue the driver who is at fault, only if their injuries are severe.
  • Add-on plans gives injured individuals the right to sue the other party for their pain and suffering, in addition to receiving compensation from the insurer.
  • Choice no-fault plans allow drivers to choose whether to keep their right to sue, or pay lower premiums. New Jersey, Pennsylvania and Kentucky are choice no-fault states.

The no-fault benefits are described in the personal injury protection (PIP) endorsement which can be added to the Personal Auto policy. No-fault benefits typically include medical expenses, funeral expenses, loss of earnings, loss benefits of the survivors and expenses for essential services. On top of this, the accident victim can sue for noneconomic loss, such as suffering and pain.

The right to sue for damages is retained in most of the no-fault states, if the accident victim has suffered from a severe injury, such as death or permanent disability.

In most states no-fault plans only cover physical injury, but not real estate. The only exception is the state of Kentucky.

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