What Is No-Fault Insurance?

What Is No-Fault Insurance?

No-fault insurance, also known as personal injury protection (PIP), helps pay for your and your passengers' accident-related medical bills and lost wages, no matter who is at fault. In states where a no-fault insurance system is used, each policyholder must file injury claims with their insurer after an accident. The goal is to speed up the payment process and reduce small claims lawsuits. Here's how it works.

Let's say another driver runs a red light and slams into your car as you're passing through an intersection. Your injuries are relatively minor—a broken arm and a mild concussion—but you need medical treatment. You head to the hospital, where the doctor runs some tests, puts your arm in a cast and tells you to rest at home for a few days until your concussion symptoms subside.

To receive compensation for your medical bills and lost wages, you would file a claim with your insurance company, and it would pay for your expenses—up to the policy limit. If you had passengers in your car who were also injured in the accident, your insurance policy would cover them too.

No-Fault Insurance vs. Tort Insurance

Auto insurance in the United States generally operates under either a tort or no-fault system, depending on where you live. States with no-fault systems require policyholders to file injury claims and receive payment from their insurer first. With a few exceptions, these states also limit a person's right to sue an at-fault driver after an accident. Typically, your injuries must be considered serious or your total medical costs must exceed a certain threshold to sue the at-fault driver for damages.

In tort states, also known as at-fault states, the insurance company of the driver who is determined to be at fault in the accident pays for medical expenses. At-fault states do not limit a driver's ability to sue after a crash.

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What Does No-Fault Insurance Cover?

Expenses covered by no-fault insurance vary by state and may include:

• Injury-related medical costs: These may include doctor's bills, diagnostic testing, physical therapy and more.
• Lost income: If you miss time from work because of your injuries, you may receive compensation for lost wages from your insurer.
• Help with routine tasks: If you're unable to perform certain tasks because of accident-related injuries, the insurance company may pay for services such as child care, housekeeping, driving and more.
• Funeral costs: If you or one of your passengers dies as a result of accident-related injuries, your insurance coverage may pay for funeral costs up to the policy's limit.

What Is Not Covered by No-Fault Insurance?

No-fault insurance coverage is typically limited to accident-related injuries, lost wages and the other expenses listed in the section above. It doesn't cover:

• Other people's injuries: If the driver or passengers in another car are injured, your PIP policy won't cover their injuries. They need to file a PIP claim with their insurance company to receive reimbursement for accident-related injuries.
• Accident-related property damage: Damage to your or another vehicle involved in an accident isn't covered by no-fault insurance, nor is damage to other property such as fences, lampposts or sheds. Property damage may be covered under your collision or the other driver's property damage liability coverage, depending on who is at fault in the accident.
• Medical expenses above your policy limit: If your medical expenses exceed your PIP policy limit, you may be able to recoup losses through the other driver's bodily injury liability coverage (if they're at fault).
• Theft and non-accident-related damage: If your vehicle is stolen or damaged by something other than a crash, such as severe weather or a falling object, comprehensive coverage kicks in—if it's included in your policy.

Which States Have No-Fault Insurance Laws?

Currently, 12 states have no-fault car insurance laws:

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

Three of those states—Kentucky, Pennsylvania and New Jersey—are choice no-fault states, which means drivers can choose whether to participate in the no-fault system or opt out of it and purchase tort insurance. When drivers participate in the tort insurance system, the at-fault driver is responsible for accident-related damages, and there are no restrictions on a policyholder's right to sue.

The remaining states operate under a tort system and may or may not offer PIP. If you live in a state that doesn't offer PIP, you may be able to purchase medical payments (MedPay) coverage to help pay for your medical bills even if you're at fault. However, MedPay doesn't typically cover lost wages or essential services like PIP does.

Does Your Credit Score Affect No-Fault Insurance Rates?

Your credit score may affect the rate you pay for no-fault insurance, depending on where you live. Most states allow insurers to use credit-based insurance scores in their pricing formulas. These scores are calculated using data from your credit history and help insurers predict the likelihood you'll file an insurance claim. Typically, people with higher scores pay less for coverage than people with lower scores. You can check your FICO^® Score^☉ for free with Experian, and taking the opportunity to improve your credit may also improve your rate

It's worth noting that while insurance companies may consider credit-based insurance scores when determining rates, they are just one of many factors used to calculate the price of a policy. Your driving history, where you live and how much you drive will likely have a bigger impact on your premium.

Frequently Asked Questions

The Bottom Line

Whether you need to purchase no-fault insurance depends on where you live. Even if you live in a state that doesn't require PIP, it may be worth buying (if it's available) to cover accident-related medical expenses and expedite claims processing after a crash.

While no-fault insurance will help pay for your injuries after an accident, it doesn't cover other people's injuries or vehicle damage. When purchasing a policy, it's critical to review your coverage options carefully to ensure your policy provides the type and amount of coverage you need to protect your finances.

Experian's auto insurance comparison tool can help you find coverage that fits your needs and your budget by allowing you to compare policies from top insurance providers.