What Is No-Fault Insurance?

man in suit explaining no fault insurance to man and woman couple

No-fault insurance provides coverage for medical expenses and loss of income for you and your passengers in the event of a car accident, regardless of who is at fault. It's required in some states and can be purchased as add-on coverage in others. This type of insurance is not available in most states that hold the at-fault party responsible for covering damages.

How No-Fault Insurance Works

Also known as personal injury protection (PIP) coverage, no-fault coverage was established to help ease the burden of courts from the expensive and time-consuming process of determining who is at fault in car accidents. It was introduced in many states during the 1970s, and allowed accident victims to recover medical expenses and lost income from their own insurance companies.

No-fault insurance is now required in states that don't allow fault to be considered in claims for insurance coverage. These policies require that drivers involved in an auto accident file a claim with their own insurance company, not the other party's.

No-fault insurance provides these protections to policyholders:

  • PIP coverage that helps you and your passengers cover medical bills, lost wages and other expenses.
  • Residual bodily injury liability coverage that shields you and your passengers from lawsuits by other parties injured in the accident. (Coverage is capped at a certain amount and may not prevent all lawsuits, particularly in the case of severe injuries or death.)

Importantly, no-fault insurance does not cover damage to your vehicle or theft. Collision or other forms of liability coverage takes care of damage, and you can file a claim for theft if you have comprehensive coverage.

No-fault insurance systems are a contrast to so-called "at-fault" systems where insurance companies assign blame in an accident to figure out who covers expenses. In an at-fault state, if you're sitting at a red light and a truck slams into you, the negligent truck driver will likely be found at fault, and you could file a claim against their insurance. If you live in a no-fault state, you would file a claim with your own provider to recoup your financial losses.

What Does No-Fault Insurance Cover?

The specific coverage included in a no-fault insurance policy can vary by state as well as the insurer. Generally, these policies cover:

  • Medical costs to treat accident-related injuries
  • Substitute services for tasks you're unable to perform as a result of the accident, including childcare, driving and housekeeping
  • Loss of income that results from your inability to work due to injuries sustained in the accident
  • Funeral costs
  • Compensation for surviving dependents if there's been a fatality (typically in the form of a small death benefit)

Which States Have No-Fault Insurance Laws?

Drivers are required to carry no-fault coverage in these states:

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

Other states, such as Arkansas and Washington, D.C., have optional no-fault insurance, where drivers choose whether they will be held to the no-fault system.

Some states allow drivers to purchase no fault insurance as an add-on. In states such as California and Illinois where no-fault insurance isn't available, insurance companies offer medical payments insurance, or MedPay, which helps with your medical bills even if you are found at fault. However, MedPay doesn't cover many of the additional expenses that PIP covers, including lost wages, rehabilitation services or child care.

Does Your Credit Score Affect No-Fault Insurance Rates?

Some providers use your credit-based insurance scores to help determine how much you'll pay in premiums, which differs from the credit scores used by lenders and creditors. Credit-based insurance scores are designed to predict the likelihood that you'll file an insurance claim, and they're based on your credit history. (The practice of using credit information in insurance is prohibited in California, Hawaii, Maryland, Massachusetts, Michigan and Washington state. Utah and Oregon only allow the use of credit data to set rates in some situations.)

The Bottom Line

If you're relocating to a no-fault state or plan to purchase add-on coverage soon, you'll want to know where your credit health stands. Improving your credit score can help you qualify for lower insurance rates in the future. You can check your FICO® Score with Experian for free.

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