Auto Insurance: No-Fault Coverage

When it's unclear who's to blame, no-fault coverage can eliminate delays and legal costs.

Liability insurance is your main financial defense against catastrophic damage you might cause to others or their property. But it's not always clear who's to blame for an accident, and proving fault, when it is possible, can entail delays and expensive legal action. Meanwhile, the victims may not get paid.

Enter no-fault insurance, an attempt to take the fault out of liability. The idea is to have accident victims' medical expenses paid by their own insurance companies, regardless of who is to blame for the accident, thereby eliminating the costs and delays of legal actions.

No states currently function under a pure no-fault system. Instead, several states have adopted a modified no-fault system. Some of those states have adopted "add-on" plans that increase the benefits you can obtain from your own insurance company but do not restrict your right to pursue a liability claim. No-fault laws vary greatly, but they do tend to have some elements in common.

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  • Your insurance company pays you and others covered by your policy for medical bills, lost wages, the cost of hiring people to do household tasks you are unable to perform as a result of injuries, and funeral expenses up to specified limits.
  • No-fault plans don't pay for property damage. This is covered by other parts of the policy.
  • No-fault plans don't pay for pain and suffering. For that you have to be able to sue someone.
  • You usually can't sue others until expenses of the type covered by the no-fault insurance exceed a certain level. By the same token, you are immune to suits by others until their costs exceed that limit.To protect themselves against fault-based suits permitted under no-fault regulations, drivers in some states must also buy traditional liability insurance. But liability payments may be reduced by compensation received under the no-fault provisions.Add-on no-fault plans generally provide benefits similar to, but less generous than, the pure no-fault programs, and the injured person has the right to sue for pain and suffering.