How does no-fault auto insurance work?

Answer 1

Traditional auto insurance pays for damages and injuries based on which driver(s) caused the accident. If you veer out of your lane and hit another car, your liability coverage is required to pay for the damage and injuries to the other driver.

No-fault insurance requires a person's own insurer to cover any damages, injuries or medical expenses he/she sustains in an accident, regardless of who caused the wreck. Each driver selects his/her policy limits and they can only collect up to that amount, even if their actual loss is much greater. So if you buy a policy with 50/100/25 limits and a drunk driver hits you head-on causing extensive spinal and neurological damage that will cost millions in medical expenses over the rest of your life, you will get $50k (max. bodily injury per person and that's it)!

The other major difference compared to traditional coverage is that you are legally prohibited from suing the other (at-fault) driver for any additional money! The original intention of the No-Fault concept was to greatly reduce the number of accidents that to court to determine fault and also eliminate huge monetary awards for punitive damges (pain & suffering). In theory, you just buy enough coverage to protect you and your family and that's all there is to it. Unfortunately, the world doesn't work that way.

At the high point, 26 states had no-fault auto insurance laws. At the end of 2012, only 13 states had no-fault insurance laws and most of those were 'modified' no-fault insurance which means they have any number of changes or exceptions unique to each of those states. More than half of the 13 states are currently working toward phasing out no-fault and returning to traditional coverage.

One of the major flaws in the no-fault concept is that negligent drivers who harm or even kill others aren't held fully accountable. Their auto insurance premiums do not increase in direct correlation to the damage they cause. Their victims are often not fully reimbursed for medical treatment. Their is little to no accountability and even fewer consequences for their behavior.

Another proposed benefit that no-fault would provide is lower insurance premiums for all drivers in each state as a whole. In reality, no-fault states were paying up to 125% more than traditional insurance states as of 2011!

No-fault auto insurance, much like Communism, is theory that can only work in an ideal world....and fail miserably in an imperfect world such as the one in which we live!