What is no-fault insurance?

No Fault Insurance. In true No Fault form, It is insurance that covers stated risks regardless of fault, the term is often applied to various accidental injury policy forms The term is also used in auto insurance in some states though usually practiced with limitations or in hybrid form.

No-Fault Insurance
"No-fault" insurance refers to medical coverage which you are required by state law to carry on your automobile insurance. Not all states have "no-fault" statutes, though almost all insurance companies sell some type of medical coverage for their auto policies. Basically, if you have an accident for which you aren't at-fault, and you live in a "no-fault" state, your own insurance must pay for your medical bills. The "no-fault" part comes from the fact that even though someone, say, plowed into the rear of your car while you were stopped at a red light, your own carrier must pick up the ambulance, hospital, rehabilitation, etc. Some states allow "no-fault" insurance carriers to go after the at-fault party, but this varies too much to discuss here and it's also relatively rare. Typically it's based on the amount of the medical bills or the weight of the at-fault party's vehicle. Many people who live in "no-fault" states often believe they can prohibit their carrier from paying their bills (with the assumption that they don't want any payments made under their policy in case their rates go up). This isn't the case. Much like worker's comp, "no-fault" medical coverage is primary, and the first-party insurance carrier must pay it. Finally, many people who know they live in a "no-fault" state often believe this has something to do with physical damage to a vehicle and liability. That's not true. "No-fault" relates only to the medical coverage. If someone hits your vehicle, and he's at-fault, he is still legally liable to pay for the damages to your vehicle.

Here are more answers and opinions from other FAQ Farmers:
It is not necessarily true that in a no-fault state, an at fault party would be responsible for paying for your vehicle damage. Here in Michigan, your own insurance company might file a "mini-tort" with the at fault party's insurance company to recover your deductible, but that's where it ends. Collision and comp coverage is still paid through your own policy.

No-Fault insurance like said in previous examples is to cover medical costs out of section B right away with no consideration to fault. It doesn't mean that you weren't in fault at the accident and you may still not receive payment otherwise awarded to you from the liability of the third party.

To clarify there is no state in the great nation that offer "pure" no fault insurance. And contrary to what Allen B. said- ("Some states allow "no-fault" insurance carriers to go after the at-fault party, but this varies too much to discuss here and it's also relatively rare")- all the thirteen states that claim they have no fault insurance allow you to sue at some monetary or verbal threshold. These "modified" no fault plans are better but still a far from what could be acomplishe by pure no fault. For example, if you are in an accident and you state has a $1000 monetary threshold on you medical bills before you can obtain the right to sue. If you actual medical bills were $900 there is nothing stopping you from visiting the doctor again, ordering some more expensive tests and exceeding the limit, and sueing for thousands in pain and suffering. In some states these thresholds are so low - like 500 - that they are hardly no fault. Now thats cleared up here are a few more things: The reason we need no fault: 1. quicker, more efficient payment of claims, 2. currently we receive around 13 cent of our premium dollar back on actual medical expenses and lost wages, 3. After an accident people can concentrate on rehab and not staying injured so the jury can believe how bad you've been hurt, 4. lower insurance rates, 5. fewer lawyers, 6. no longer have to supplement for uninsured motorists and 7. stop insurance companies from overpay small claims because of the threat of litigation (therefore raising rates). Reason we don't have no fault - Many lawyers would lose their jobs, and they are the special interest group that rights the laws.

An observation from someone in the industry: Almost every policy provides an optional no-fault medical coverage called "Medical Payments"(Or equivilent). Some states like Florida, Texas, hmm New Jersey, etc have mandatory no-fault. It is my observation that the mandatory no-fault is always more expensive. In some states like Texas, you may reject the no-fault coverage in writing (the insurance company may provide you a form to sign, othertimes a letter is sufficient) other states like Maryland you can not reject it no matter what.

A note on Michigan "No Fault" Auto Insurance: It had to be sold politically so a lot of effort went into demonizing the legal profession along with those who were either underinsured or non-insured, and when it went into effect in 1973 It featured Mandatory Participation, resulting in a higher margin for the underwriters, which was supposed to (theoretically) lower premiums. A Liability Limitation was also supposed to do the same, but in fact in resulted in the exact opposite: Michigan has the highest auto insurance rates in the country. When the Michigan Insurance Industry lobbied long and hard for "no fault", it sure wasn't for the benefit of the auto owner. Also, the state stepped in to play the citizens advocate role by supposedly acting as a watchdog over the industry, so of course the employment opportunities at the Michigan State Insurance Commission rose significantly. In short, the "no fault" law in Michigan really should have been called The Michigan Public Employee and Auto Insurance Agency Benefit Act.

No comments: