No fault auto insurance defined, where you need it, different types of bodily injury coverage and criticisms of the no fault auto insurance model.

In the US, many urban drivers need no fault auto insurance.

When dealing with auto liability insurance, most of the United States is familiar with the concept of “fault.” That is, if someone hits your car and is found liable, his or her insurance company will pay to fix your car.

However, there are states where this isn’t the case. Instead, in these “no fault” states, your insurance may pay for any accidents you have regardless of what happens. No fault insurance can strike many as an odd concept. Indeed, even many insurance agents who don’t operate in no fault states may be unfamiliar with it.

But if you live in a no fault state, or are planning to move to one, you should be familiar with the concept.

What is No Fault Insurance?

Most states operate in a “traditional tort” auto insurance legal environment. That is, whoever is found at fault pays for an accident. However, as the number of uninsured and underinsured drivers rose despite legal insurance requirements, by the early 1970s many began to question this model. The proposed fix? Let your insurance fix your car regardless of fault. Hence, no fault insurance, also some times known as “personal injury protection” (PIP).

Although exact details vary from state to state, in its basic form no fault insurance works in much the same way as a zero deductible full coverage auto insurance policy. If your car needs fixed, it’s fixed on your insurance. This, however, is a very general overview. If you live in a no fault state, it’s important to discuss the specifics with your insurance agent.

The concept of legal liability remains much the same in no fault auto insurance states. Fault is still assigned. The difference is if you’re found at fault, your insurance increases your rates after all claims are paid. If you’re not, they don’t.

No fault insurance jurisdictions tend to be urban with large numbers of uninsured drivers, although there are exceptions. Currently no fault auto jurisdictions in the United States are: Florida, Hawaii, Kansas, Massachusetts, Michigan, Minnesota, New York, North Dakota, Puerto Rico and Utah. Three other states, Kentucky, New Jersey and Pennsylvania, allow drivers to choose either a no fault or a traditional tort auto insurance policy. All Canadian provinces and territories employ some form of no fault insurance.

Qualitative and Quantitative Threshold in No Fault Insurance

Because bodily injury claims are also paid by one’s own insurance rather than by someone else’s, there is no separate medical payments coverage in no fault states. That’s part of your liability coverage. However, some no fault states set a “qualitative threshold” on bodily injury claims, while others employ a “quantitative threshold.”

Quantitative threshold no fault insurance sets a monetary limit that must be spent on medical bills directly resulting from an accident before a tort can can be pursued. Qualitative threshold no fault insurance allows a tort only for particularly serious bodily injury categories, such as death or permanent disfigurement.

Criticisms of No Fault Insurance

In the 1970s approximately half the United States experimented with no fault auto insurance. However, over time several states returned to the traditional tort model. Why? Well, as it turns out no fault auto insurance does have a couple major drawbacks.

A common criticism of no fault auto insurance is that it’s expensive. Indeed, insurance rates in no fault states tend to be higher than rates in traditional tort states for similar policies. This could be due to any number of factors, including increased insurance company risk exposure in no fault states as well as the high number of uninsured drivers who tend to operate in no fault states.

No fault insurance states also tend to have fraud issues on levels simply not seen elsewhere. This is particularly true in New York and Florida, which have both experienced serious auto insurance fraud trends in recent years. The problem has been particularly bad in New York City, where no fault auto insurance fraud continues to comprise a significant amount of the city’s civil court caseload despite state attempts to address the situation.

What uninsured and underinsured coverage is, how it works, and why you need it – and what happens if you don’t have it.

Life can be hard enough. UM/UIM makes it simpler.

In a perfect world, everyone who drives a vehicle would carry adequate auto insurance coverage. Of course, in a perfect world there wouldn’t be any car accidents either, so would there be a need for auto insurance in the first place?

Philosophical nitpicking aside, ours is most definitely not a perfect world. Car accidents happen, and they can be caused by people who either don’t have enough liability coverage to cover your costs, or worse don’t have auto insurance at all.

What if this happens to you? Do you collect what you can from their insurance company and sue for the rest? Do you let your insurance company subrogate against them and hope for the best? Well, you can do any of those things, or you use your uninsured and underinsured motorist (UM/UIM) coverage.

What is Uninsured and Underinsured Coverage?

UM/UIM is a type of auto liability insurance coverage that specifically covers you against uninsured and underinsured drivers. Some states require UM/UIM coverage by statute as part of your legally required auto liability insurance. In these states it’s not an option. It’s still a good thing to have everywhere else.

UM/UIM coverage is expressed in the same way as general auto liability coverage, either with a three-pronged “split limit” dealing with bodily injury and property damage, or a “combined single limit.” Usually UM/UIM is written at the same levels as liability coverage for any given policy.

How Uninsured and Underinsured Coverage Works

If you’re in an accident in a “traditional tort” auto insurance state (and most states are), once fault is determined the at-fault party’s insurance company will pay for bodily injury and property damage claims up to the stated limits. This is all fine and good until the limits run out. For example if an at-fault party totals your Lexus in California, they may only have $5,000 in property damage coverage, the minimum required by California law. Well, $5,000 isn’t going to cover a totaled Lexus. Not even close.

The same concept applies if our at-fault party has no insurance at all. Make no mistake, the at-fault party is legally liable for the accident regardless of whether he has insurance or not. You and your insurance company are well within your rights to go after him, but litigation is often a slow process with no guarantee for recovery. In the meantime, you need to get back on the road.

To make up these shortfalls, you’ll need to file a UM/UIM claim with your agent. After the other guy’s insurance runs out, your UM/UIM coverage takes up the slack to get you back to where you were before the accident, a concept insurance professionals call “indemnification.”

The Value of Uninsured and Underinsured Coverage

In states where it’s not required, one may be tempted to drop UM/UIM coverage to save on premium. While this can be done, it’s generally not recommended. For one, because UM/UIM claims are less common than liability or full coverage claims since by definition it doesn’t come into play until another type of auto insurance coverage option is exhausted, it has a smaller risk exposure and therefore a smaller premium. Dropping UM/UIM rarely represents significant cost savings in and of itself.

For another, not having UM/UIM increases your risk exposure to uninsured and underinsured drivers. If you’re in an accident with an uninsured or underinsured at-fault party, you may find yourself with no choice but to either litigate or subrogate through your insurance company. Both may represent additional costs, either in the form of attorney fees or increased premium due to having to fix your car through a full coverage claim.

What is rental reimbursement, when to rent a car, why you may not want the rental company’s “insurance”, and using the coverage.

She may need a rental car after her accident.

Consider this: you got hit and your car sustained some pretty decent damage. No one was hurt, thankfully. You filed a claim on your vehicle, the adjuster took a look at it and everything is in order. The shop says you’ll have your ride back in a few days.

That’s all fine and good, but you still need a car to get to work. What are you going to do in the meantime? Take the bus?

Borrow Uncle Maynard’s ’72 Pinto?

Fortunately many insurance companies are way ahead of you on this. They offer rental reimbursement coverage.

How Rental Reimbursement Works

Rental reimbursement coverage, also known as “loss of use,” is an optional auto insurance coverage which is often considered in the same breath as towing or roadside assistance coverage. It’s not required by anyone and often overlooked, sometimes even by agents. However, like towing and roadside assistance, it’s not very expensive and real nice to have when you need it.

As with any other coverage there can be differences between companies. Rental reimbursement coverage is typically offered on a per diem basis. This reimbursement is typically capped at around $25/day for a set amount of time, say six weeks. You go to any car rental establishment, pick up a rental on your own dime and your insurance company reimburses you directly.

It’s pretty straightforward.

Renting a Car With a Common Pitfall

However, renting a car often poses its own set of insurance-related challenges. Regardless of why you’re renting a car in the first place, most car rental agencies will try to upsell you on their own insurance. Keep in mind, this is often not technically “insurance” per se, but a reimbursement scheme for any damages they may charge you.

Many people take this insurance not realizing their own insurance company would cover them in a rental at the same levels of coverage they have with their own car. In addition this is usually the case if you’re renting anywhere in the United States or Canada. It’s good stuff to know both if you’re in an accident or if you’re going on vacation. Before paying for a potentially unnecessary “service,” ask your agent if your policy covers you driving a rental.

Also keep in mind most auto rental companies won’t rent to anyone under 25, period. If this applies to you, that Pinto may be your only option despite your rental reimbursement coverage.

To Rent or Not to Rent

One nice thing about rental reimbursement coverage is that often times you don’t need to actually rent a car to qualify for it. If you file a rental reimbursement claim and are approved, the insurance company just sends you a check. They’re not going to follow up to see if you actually rented a car.

Since it’s technically a loss of use coverage, you could use the money to compensate a family member for temporary use of their car. Alternatively, you could just pocket the money if you so desired. It’s entirely up to you. Check with your insurance agent to make sure this is OK first, but chances are it is.

Defining comprehensive auto insurance, how to best utilize your deductible, auto glass claims, and how to deal with animal strikes.

If the worst happens here, we know how to cover it - comprehensive.

No state requires full coverage auto insurance. However, most lenders or “lienholders” do. Dropping full coverage while making car payments is not a good idea.

You should also know that full coverage consists of two main components: collision coverage and comprehensive coverage. Collision is pretty straightforward. If your car hits something, it helps you fix it.

Pretty simple. But what is this “comprehensive” business, you might ask?

Comprehensive Coverage Defined

Another name for comprehensive car insurance is “other than collision.” They’re not trying to be cheeky with that (well, we don’t think so, anyway), but that’s effectively what it is. Comprehensive coverage covers a wide variety of mishaps that could happen to your car – what insurance agents refer to as “perils” – which are … not collision.

Perils covered by comprehensive auto insurance typically include theft, vandalism, fire, weather-related damage and “missiles,” which are usually in the form of rocks. In other words, in most policy comprehensive auto insurance is a catch-all for perils which are not collision and which are not specifically excluded in the policy.

Another attractive feature of comprehensive auto insurance is the fact comprehensive claims rarely, if ever, count against you come renewal time. This is in stark contrast to collision claims, which strongly tend to raise your rates unless they’re quite small. In short, don’t be afraid to file a comprehensive claim if conditions warrant.

Know Your Comprehensive Deductible

As with collision coverage, comprehensive car insurance includes a deductible, or agreed amount you pay on any claim before the insurance company kicks in. Comprehensive deductibles options are usually the same as for collision deductibles, ranging from $0 to $1,000. However it’s not necessary to choose the same deductible for both. Most people don’t.

Since comprehensive claims on the whole are much lower dollar amounts than collision claims, many insurance professionals recommend choosing a lower comprehensive deductible. A combination of a $100 comprehensive deductible with a $500 collision deductible is particularly popular.

Comprehensive Glass Coverage

By far the most common comprehensive auto insurance claim involves auto glass repair. In fact, these claims are so common many insurance companies almost consider auto glass coverage a form of full coverage unto itself.

Many companies apply your comprehensive deductible to everything comprehensive except auto glass claims. Instead, auto glass is often covered at a zero deductible, especially if the claim is for repair rather than replacement. Some companies offer this as an option, while others may just include it in your comprehensive coverage. Ask your insurance agent for more information specific to your company.

When Collision is Comprehensive After All

There is one scenario in which hitting something with your vehicle (as in a “collision”) actually warrants a comprehensive claim. Animal strikes typically fall under a policy’s comprehensive section. These can include small animals like birds and jackrabbits all the way up to deer and moose, even livestock.

So if you find yourself accidentally running over your local fauna and damaging your vehicle, know that it’s comprehensive insurance which covers you – so long as you have it.

Defining subrogation, how it works, and why it can be a good deal for both you and your insurance company.

Oops. Someone may face subrogation after this

No one wants to get in an auto accident. No one especially wants to get in an auto accident against a negligent driver with no insurance. Needless to say, all sorts of problems can arise from that.

Fortunately there are several remedies for this situation. Hopefully you have uninsured and underinsured motorist coverage (UM/UIM) on yourself and your vehicle. That’s what it’s for.

Another remedy is subrogation. While subrogation is not something that an insured driver often considers, rest assured your insurance company considers it a big deal.

Defining Subrogation

What is Subrogation? Subrogation is an important behind-the-scenes player in many liability insurance claim situations, especially when an uninsured or underinsured driver is involved. In its purest form, subrogation is a legal concept in which one creditor unilaterally replaces another. When applied to the insurance industry, in certain situations it gives the insurance company the right to replace you as the entity which a negligent party must compensate.

This may not sound very fair. However, if your insurance company steps up to fix your car first, it actually makes a lot of sense for both you and them.

Why Subrogation Makes Sense

Regardless of whether one has insurance or not, legal liability is legal liability. This is the basis for  insurance subrogation. While subrogation can occur in many different types of insurance, it’s quite common in auto insurance.

In auto insurance, subrogation most often occurs when someone makes a collision or comprehensive claim to fix damage that was not their fault. This can occur in an uninsured motorist situation, or perhaps in an instance in which the other guy’s insurance company is taking too long to process a liability claim. As with any other full coverage claim, you pay your deductible and your insurance company takes care of the rest.

Subrogation may also apply in a UM/UIM claim situation, however there can be some additional issues with that. For example, in February 2009 the Florida Supreme Court ruled that an insurer must wait until a UM/UIM claim is closed before it can pursue any subrogation options against a negligent party in that state.

How Subrogation Works

Insurance companies will generally honor these claims with the knowledge they will subrogate against the guilty party to recoup their losses. This arrangement not only gets your car fixed, but also allows your insurance company to minimize their loss ratio, which in turn improves their bottom line and allows them to offer more competitive premiums later.

Subrogation can be as simple as insurance companies agreeing to reimburse each other in cases where claim payments are too slow. In some situations your insurance company may subrogate directly against the other driver, demanding that he or she reimburse them for your claim.

In these instances subrogation is similar to collections procedures. Your company and the other driver can negotiate a payment plan, with the driver making payments directly to your company. If necessary your company may sue the other driver to recoup its debt. If your insurance company is subrogating on your behalf, you don’t have to worry about what that other guy is doing or not doing. That’s the insurance company’s responsibility

Either way, realize you won’t see any benefit from subrogation procedures made on your behalf. Your insurance company already paid your claim, therefore the matter is now strictly between them and the other driver.