3 Key Differences Between No-Fault and Fault Car Insurance

Different states have different laws about how car insurance claims are handled.

The majority of states are "at-fault" states, but some are considered "no-fault" states. It's important to understand the differences between at-fault and no-fault states, as they can affect a driver's auto insurance obligations. They can also impact a driver's rights after a crash, and can ultimately have a big financial impact that could profoundly affect a driver's checking account balance if something goes wrong in a car.

Here are three of the key differences every motorist should be aware of so they can better understand at-fault versus no-fault insurance states.

1. Insurance requirements differ

In no-fault states, drivers are required to buy personal injury protection (PIP coverage). This type of insurance generally must be bought in addition to other mandatory coverage such as liability insurance. PIP coverage is also referred to as no-fault insurance, which is actually why states that require it are called no-fault states.

In states that do not require no-fault coverage (called at-fault states), PIP protection is not mandated as part of the state minimum insurance coverage that is required by law.

2. There are different rules for when drivers can sue after an accident

In at-fault states, drivers are allowed to sue or otherwise pursue a claim against a driver who caused a crash, regardless of the extent of the damage that occurred. In fact, it is expected that motorists who are injured in an accident, even if their injuries are relatively minor, will get compensation for medical bills, lost wages, pain and suffering, and other crash-related damages from the liability insurance of the driver who was to blame for the accident.

In no-fault states, motorists are limited in when they can pursue an injury claim against the driver responsible for causing an accident to happen. They typically must rely on their own PIP coverage for more minor injuries and can try to recover compensation for injuries from the other driver only when their injuries were pretty serious.

The exact situations when a crash victim can sue in a no-fault state can vary from place to place, but generally medical expenses must exceed a certain amount (such as $2,000, $3,000 or even $10,000) and/or the injuries must be serious enough to cause permanent disfigurement, permanent impairment, or death.

3. No-fault insurance provides different coverage than at-fault car insurance

In at-fault insurance states, the reason drivers have to pursue a claim from those who cause crashes is because their own coverage usually doesn't pay for things like medical bills or lost wages. Unless they've bought optional protections, such as Medical Payments Coverage, they wouldn't have coverage from their car insurer for these things.

But, in no-fault states, personal injury protection does pay for medical bills up to PIP limits (which are often around $10,000, but could be more or less depending on location). PIP coverage may also pay for partial lost wages.

It's important for drivers to understand these differences as the kinds of insurance they must buy and their rights after a crash are all affected by whether they live in an at-fault or a no-fault state. This can be a big issue when moving, or after a crash happens -- when those involved need to decide how best to recover the monetary losses they've incurred.