Car accidents are stressful for everyone involved, and the stress doesn’t end when you leave the scene of the event. Of course, a significant piece of the puzzle is filing a claim and paying for any injuries or damages. But where you live plays a role in exactly how that works.
State laws vary across the country, but 16 states in particular are no-fault states. This means that when it comes to medical bills, injured motorists file claims with their own auto insurance company, no matter who is at fault in the accident.
What is no-fault insurance?
No-fault insurance is required by law in 16 states. With no-fault insurance, an insurance company is responsible for covering its policyholders’ personal injury-related expenses following an accident, regardless of fault. This coverage is also known as Personal Injury Protection (PIP) insurance.
The goal of no-fault insurance is to decrease the time it takes for injured parties to receive reimbursement for medical expenses. In at-fault, or tort system, states, it is up to the motorist who caused the accident to pay for damages—bodily injury and otherwise.
However, getting compensated in at-fault states isn’t always clear cut. In cases where there is some dispute as to who was the at-fault driver, or if the at-fault driver doesn’t have sufficient coverage to pay for the expenses, the injured party can file a lawsuit, delaying the payout until it is resolved in small claims court.
To combat this lengthy process, no-fault states require auto insurance policies to include what’s often called Personal Injury Protection (PIP) insurance. PIP coverage reimburses policyholders for their medical costs, up to the policy limit.
Generally, PIP insurance will cover these costs:
Medical bills: This includes health insurance deductibles and medical bills for the driver and any other passengers in the vehicle who were injured in the accident.
Economic losses: If personal injury from an accident has you out of work and unpaid, PIP can cover lost wages.
Funeral costs: Should anyone in your vehicle die as a result of the accident, PIP will usually cover funeral costs.
Other services: The cost of an injury doesn’t end with hospital bills. PIP can also cover essential services like childcare, house cleaning, and grocery shopping if your injury keeps you from taking care of these important tasks.
Personal Injury: If you have medical expenses for personal injury after an auto accident, your first step is to file a claim with your own insurance company. In a no-fault state, it doesn’t matter who is at fault in the accident—your PIP insurance policy covers your claim.
With Personal Injury Protection (PIP) coverage, it doesn’t matter who is at fault in the accident when it comes to medical bills. You should file a claim with your insurance company for related costs. Usually, you’ll need to use your PIP coverage before your health insurance covers hospital costs. Your claim should also include other covered costs, such as funeral expenses and lost wages.
Property Damage: If your car or another car is damaged in an accident, who pays for it does depend on fault. This is to be worked out between the two parties’ insurance companies. When you’re at fault in an accident, damages to your car can be covered by collision coverage. Damage to another vehicle when you’re at fault can be covered by property damage liability insurance.
Whether or not you’re at fault in an accident, your rates may go up due to a new claim on your file. Some insurance companies do offer accident forgiveness, so it’s good to know ahead of time what the consequences of any type of claim could be on your premium.
No-fault laws make it challenging to sue another motorist for medical expenses. After all, the idea of the no-fault system is to avoid the lengthy lawsuit process and get reimbursements to injured parties faster. However, it’s not totally impossible to sue for damages.
In extreme scenarios, drivers in no-fault states can sue at-fault drivers if the details of the accident exceed a certain threshold set by the state. Two scenarios could warrant a lawsuit in a no-fault state:
Monetary threshold: If the cost of personal injury bills exceeds the monetary threshold set by your state, it could be possible to sue the at-fault driver for compensation.
Verbal threshold: States can define the severity of an accident, and based on that, allow lawsuits. For example, a state may determine that the verbal threshold is death or disfigurement—if either occurs in an accident, you may be able to sue.
How to choose the right insurance coverage in a no-fault state:
There are a few things to consider when building your insurance policy in a no-fault state.
Even though you need to purchase an insurance policy that meets the minimum PIP coverage required by your state, it’s worth thinking about adding more coverage. Any personal injury costs that exceed your policy will be your responsibility to cover.
To better protect yourself from out-of-pocket medical costs, consider what your health insurance covers and requires for auto accident-related bills. You might also think about the gap between your coverage limit and the threshold to file a lawsuit. If your state has a monetary threshold, would you be comfortable paying for costs over your limit, but below the threshold? If your state has a verbal threshold, what is considered a serious injury by state law, and how much would you expect to pay?
The bottom line is, opting for a higher coverage limit than your state’s insurance laws require can protect your finances in the long run.
It’s also important to keep in mind that no-fault insurance only covers personal injury. Both no-fault states and tort states allow property damage costs to be assigned to an at-fault driver. As such, additional coverage is needed (and usually required) to protect both parties. Make sure you understand the minimum coverage requirements for property damage liability or collision coverage.
The type of insurance you buy depends on what your state requires, but it should also account for the coverage that makes sense for your lifestyle. Considering the financial burden you would take on in an accident is a good start.
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