What Is No-Fault Insurance?

Definition & Examples of No-Fault Insurance

Two women in a car

Depending on where you live, you may be required to carry no-fault insurance. Also known as personal injury protection (PIP) insurance, no-fault insurance covers your medical expenses if you are injured in a car accident, regardless of who is at fault.

Let’s take a closer look at how this type of coverage works, and who needs to get no-fault insurance.

What Is No-Fault Insurance?

In states with no-fault insurance requirements, every driver who sustains injuries in a car accident files a claim with their own insurance company—regardless of who caused the accident. Each insurance company is required to pay its own policyholder according to their policy benefits.

The purpose of no-fault coverage, or personal injury protection (PIP) insurance, is to ensure everyone receives their benefits without having to wait for lengthy lawsuits to move through the court system. Ideally, the no-fault system could lead to lower car insurance rates because insurance companies are not spending money fighting cases in court.

How Does No-Fault Insurance Work?

If you live in a typical at-fault state, one person is considered liable (legally responsible) for the accident. The responsible party’s car insurance company pays for the medical expenses of the injured person, as well as any property damage, up to the policy’s limit. The at-fault driver can also be sued for pain and suffering, plus out-of-pocket expenses.

But in a no-fault state, if you or your passengers sustain injuries, you’ll file a claim with your own insurance company, which will pay for your medical expenses. You can’t sue any other driver involved in the accident, unless you meet a minimum threshold regarding the severity of your injuries or the amount of your medical expenses. For instance, in New York, the maximum you can receive from an insurance claim is $50,000. If your medical expenses exceed this amount, you can sue for the additional expenses.

If you live in an at-fault state, you may be able to add PIP coverage to your policy. In that case, your car insurance company will pay for your medical expenses under your PIP insurance. However, you also retain the right to sue the at-fault driver without any restrictions.

What Does No-Fault Insurance Cover?

First and foremost, no-fault insurance covers medical expenses if you or your passengers are injured in a car accident, regardless of which driver is at fault. PIP coverage may also pay toward lost wages, funeral and burial costs, and out-of-pocket expenses for essential services. Your exact PIP coverage depends on the state you live in and can vary widely from state to state.

For instance, in Florida, you are required to carry a minimum of $10,000 in PIP coverage, which only applies to medical expenses. However, in New York, basic no-fault car insurance covers medical and rehabilitation expenses; 80% of lost wages for up to three years from the date of the accident; reimbursement for out-of-pocket expenses such as household help or transportation for medical treatment; and a death benefit.

What Does No-Fault Insurance Not Cover?

Because no-fault insurance is specifically for expenses related to personal injuries, it will not cover the following:

  • Damage to your vehicle
  • Theft of your vehicle
  • Damage to other people’s personal property
  • Medical expenses or lost wages that exceed your policy’s coverage limit

Do I Need No-Fault Insurance?

Where you live determines if you are required to have no-fault insurance. These 12 states have no-fault auto insurance laws:

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

Each state has different requirements for the minimum PIP coverage you are required to carry, so it’s important to check with your insurance company or agent to find out what those minimums are to ensure you comply with state law.

If you don’t live in a no-fault state, you may still be able to add PIP insurance if you live in one of the following states or Washington, D.C.: 

  • Arkansas
  • Delaware
  • Maryland
  • New Hampshire
  • Oregon
  • South Dakota
  • Texas
  • Virginia
  • Washington
  • Wisconsin

In Washington, D.C., drivers can choose between no-fault or at-fault coverage. If you choose no-fault coverage and are involved in an accident, you have 60 days to decide whether to receive benefits under your no-fault insurance or file a claim against the other driver. 

Even if you are not required to carry no-fault insurance, you may want to add it to your policy to avoid delays in receiving benefits if you’re injured during an accident. Also, if you don’t have health insurance, or your health insurance has limited benefits, you may want the extra coverage of PIP insurance. The additional benefits of PIP coverage, such as paying lost wages and other out-of-pocket expenses, may also be good reasons to purchase it.

Will My Rates Go Up After a No-Fault Accident?

Filing a claim on your PIP insurance could result in higher car insurance rates, but it depends on your car insurance company and where you live.

Key Takeaways

  • No-fault insurance covers medical expenses for you and your passengers if you or they are injured in a car accident.
  • In some states, no-fault insurance may also pay some of your lost wages, funeral or burial expenses, and certain out-of-pocket expenses. It does not pay to repair damage to your car or cover any liability claims.
  • No-fault insurance is not available in all states. Twelve states require no-fault coverage, while 10 others and D.C. provide the option to add PIP insurance to your other coverage.
  • The purpose of no-fault insurance is to ensure you receive benefits promptly without waiting for the insurance companies to work out who is at fault in an accident.