October 20, 2011

No Fault Auto Insurance Explained

In the United States, every state has different auto insurance requirements and laws. These laws generally fall into one of two categories, tort or no fault. Most states are tort states and, under this system, drivers have to pay for damages that they cause in an accident. In a no fault auto insurance state, however, drivers only need to pay for their own damages in an accident. No attempt is made to figure out who was at fault in an accident, except in a few very specific circumstances. This can mean a lower average auto insurance rate for drivers in the state, as accidents are much less costly in general in no fault states. It's important to know how a state's insurance law works before buying insurance, as state laws can certainly affect whether certain types of coverage are helpful to drivers.

A state's auto insurance system also affects its insurance requirements for drivers. In a state with tort insurance laws, drivers must carry liability auto insurance, as they must pay for the costs of property damage and medical damage resulting from an accident that they caused. No fault states usually don't have this requirement. Instead, drivers must carry personal injury protection (also known as PIP insurance). This special type of car insurance coverage protects a driver and his passengers. Some no fault states allow drivers and passengers to sue for damages when medical bills or property damage bills have exceeded a given amount and, in these states, there may also be a liability requirement, although liability insurance requirements in no fault states are usually very small.

In every state, accidents will cause a driver's auto insurance rate to rise, but drivers see lower rates on average in no fault states due to lower court costs. It's obvious that when their legal abilities are restricted, drivers can't go to court as often. This means that insurance companies don't have to pay hefty attorney fees or court costs and the savings are passed on to drivers. This is the biggest argument in favor of no fault auto insurance systems. Lower rates are certainly better for all motorists and, by keeping the majority of accident-related cases out of the court system, state governments, auto insurance companies and drivers all pay less.

The main argument against no fault auto insurance law is that it takes away the rights of drivers. Safe drivers might also be unfairly penalized by their car insurance companies after an accident with higher rates. However, the low auto insurance costs and high efficiency of no fault laws have made them a popular alternative when assessing the costs of an accident.