What is 'no-fault' insurance?

No-fault insurance is a system adopted in some states that essentially bypasses the conventional legal procedure which finds fault in an accident. (This is the procedure by which you hire a lawyer, file suit and possibly go to court to prove the accident was the other guy's fault.) No-fault simply does away with the concept of one party or the other being at fault--no lawyers, no court, no judge, no jury, no lengthy lawsuits against the other party. This is considered beneficial to taxpayers, because it eliminates costly legal proceedings that the state must manage, and to insurance policyholders, because it helps keep rates down.

If you are insured in a no-fault state and have an accident, you don't go after the other driver. You contact your own insurer and file a claim. Your own insurance policy guarantees you immediate compensation for damages, medical expenses, lost wages, etc.

The type and range of no-fault coverage varies from state to state. What defines the limitations of no-fault policies can differ in two critical areas:
  • Threshold--The type of damage/injury or the cost of repair/recovery that triggers the need for legal action.
  • Mandated--Benefit Level--The package of benefits (medical, wage loss, replacement services and other expenses) your state requires you to carry.
The details of no-fault insurance can be complicated. Contact your agent or state's insurance department for further information.