What is No-Fault Auto Insurance?

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Car insurance can sometimes seem more complicated than it really should be, and finding the right coverage can be confusing. If you have asked yourself what is no-fault auto insurance? It may sound like the ideal solution, although like most financial products and services, it has pros and cons.

No-fault auto insurance means that in the event of an accident your insurance company will pay for your damage or any injuries without taking into account whether you were at fault. It means that if you were in an accident, you won’t be hit with a huge financial penalty, even if it was clearly your fault. However, it also means that you won’t be able to sue the other driver or make a claim against them for being at fault even if they were clearly the cause of the accident.

Not all states allow you to make a no-fault car accident claim; currently this type of coverage is available in about 15 states. The logic behind the no-fault system was that drivers would immediately get money for any injury or damage to their car, without the often lengthy process of trying to prove whose fault the accident was. And because drivers weren’t able to sue the other driver, it was hoped the system would keep the overall cost of car insurance premiums down. However, the system often didn’t work as it was intended to; some no-fault states realized that insurance premiums were actually increasing, and reverted back to the more traditional system.

Those states that do allow no-fault car insurance also have different types of coverage, with differing monetary thresholds. Drivers in some states are allowed to choose whether they want to have no-fault coverage or the more traditional type of policy, while some states allow insured drivers to pay more on their premium to add on the no-fault coverage. And you may find yourself in the situation where you don’t have no-fault insurance and are in an accident, but you can’t sue the other driver – whose fault it was – because they are able to make a no-fault accident claim.

Perhaps the biggest advantage of no-fault car insurance is having the peace of mind in knowing that your insurance company will pay out, regardless of whose fault the accident is. Making a claim is generally faster, easier and more efficient, and the process eliminates the needs for arguments with the other party. Court costs are supposedly lower, as well as the overall cost of car insurance, which in turn makes it easier for every driver to be adequately insured.

However, there are some drawbacks to no-fault auto insurance. It isn’t an option for every driver, depending on where you live, and some states have tried to instigate the system but then decided that it isn’t effective. Under the system, a bad driver is protected, and can’t be sued or held accountable for their actions, and there is also no compensation for any pain and suffering caused by a car accident. Some financial experts have pointed out that insurance rates actually increase under a no-fault system, often by as much as 25 percent.

Although no-fault auto insurance sounds like a money saving and convenient option, if you have the option of taking out a no-fault policy, make sure it actually works for you.




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