(Newswire.net — September 2, 2017) — Car insurance is an unavoidable expense if you drive a car. There’s plenty of advice out there for how to choose the right company, but even when you have the best policy, you might be surprised to know how it actually works.
The two types of car insurance: fault and no-fault
Who pays for damages after a car accident? You might think the responsibility always falls on the person at fault, but that’s not always true. Traditional liability insurance works that way, but there’s another type of insurance that works differently. It’s called “no-fault” insurance, or personal injury protection (PIP).
With no-fault insurance, each party involved in an accident is covered by their own policy. Whatever your damages are, your insurance policy pays – not the other party. Fault is not factored into the equation to determine who pays.
Car insurance requirements vary by state, so if you don’t live in a state that requires no-fault insurance, you probably didn’t know it existed.
Sometimes no-fault coverage is required
In some areas, like Washington DC, PIP coverage is required, and the no-fault rules are imposed. As this lawyer explains, “When an accident happens, you are required to first recover compensation from your own auto insurer under your PIP policy. This PIP coverage will pay for your medical costs and your lost wages no matter who was at fault for the accident.”
He also points out an important detail, “While no-fault insurance provides you with more coverage than you might otherwise have if you caused a car accident, it also curtails your right to make a claim against another driver who caused you harm.”
In this sense, it’s easier to sue other drivers for damages in states that don’t require no-fault coverage.
Recovering damages in no-fault states
If your no-fault insurance doesn’t cover all of your expenses, you might have a difficult time recovering the remainder from the other driver. Although your rights are limited, it doesn’t mean you can’t pursue a claim. You can pursue a claim against the other driver if:
- You sustained injuries that caused disfigurement or permanent scarring
- Your injuries substantially impaired your abilities
- Your daily activities have been disrupted for at least 180 days
- Your medical bills exceed what your PIP benefits will cover
The downside to no-fault states
Unfortunately, insurance fraud is common in no-fault states. Some people stage accidents in order to make claims under the no-fault PIP coverage. Since PIP coverage provides up to $10,000 in medical costs, some unscrupulous healthcare providers make the claims but provide no medical treatment, billing insurance companies and paying off the drivers who staged the crash.
As a result, insurance premiums go up for everyone.
Rental car insurance is more complex
Many people have credit cards that provide collision coverage for rental cars, so they decline the collision coverage at the rental car counter. However, policies change frequently, and you need to know the details before you say, “no thanks.”
If you’re going to decline the insurance offered by the rental car company because your own policy covers it, consider that “loss of use” fees may not be covered by your policy. If you damage your rental car and it’s out of commission while being repaired, you’re going to owe the rental car company a daily fee for each day it’s unusable.
You also need to be aware of your limits. If your car at home is 20 years old, and you’re renting a new car, your policy limits might not cover damage to your rental car.
Be diligent and know your policies
Whether you’re renting a car on vacation, or choosing a policy for your own car, be sure you read all of the fine print before signing any contracts. Don’t take it for granted that the person at the counter will explain everything to you. Often, they aren’t trained enough to know all of the details. They’re sales people who want you to upgrade your rental car and purchase all of their extras. There’s a line behind you, and they don’t have time to hold your hand.