PIP and No-Fault-Is “Reform” the Wave of the Future?

More and more states are abandoning the PIP/No-Fault form of auto insurance in favor of a tort-based set of laws.  PIP/No Fault originated in the 1930s as an alternative to the often slow and expensive process of litigating claims.  The intent was to speed up the process by shifting the dispute resolution to the insurance companies rather than the courts.  In theory, this was supposed to reduce insurance rates, and initially rates did go down.  By the mid-70s, almost 20 states had some form of no-fault insurance laws.  However, over time, rates rose until “No-Fault” states had higher rates than tort-based states.  Beginning in 1980, states started repealing their no-fault laws, and now only nine states (Florida, Hawaii, Kansas, Massachusetts, Missouri, Minnesota, New York, North Dakota, and Utah) have mandatory no-fault laws. Eleven states plus the District of Columbia have hybrid laws (Arkansas, Delaware, Kentucky, Maryland, New Jersey, Oregon, South Carolina, South Dakota, Texas, and Virginia).

The pendulum seems to be swinging back to tort-based auto insurance. What does that mean for you as a policyholder?

The Good News

Tort-based systems, in theory, give you more choices for medical payments and could save you substantial amounts of money.  As an example, depending on the insurance company and coverages selected, insureds in Colorado (the most recent state to revert to a tort-based system) could see savings of 10%-30%, according to several recent Denver Post articles.

The Choices

PIP, or personal injury protection, is still available (in most cases), should you wish (or need) to pay for it.  If you choose to drop this coverage or are already under a tort-based system and don’t have this coverage, you can still purchase it, with most policies, for medical expenses.  However, this coverage will be limited, generally to no more than $50,000.  If the additional coverage is purchased, it will pay expenses incurred by you and your immediate family for injuries resulting from an auto accident when you or they are at fault.

Since many drivers are uninsured or underinsured, it is essential that you understand the ramifications and make an informed decision about the “Uninsured/Underinsured Motorists” coverage option.

What If?

What happens if you are at fault? Your auto policy should pay the other person’s claims.  Companies normally negotiate this with each other.  If you have insufficient coverage you may have to go to court—the tort aspect of the law. Either you or your health insurance company will normally pay medical expenses for you and your family once expenses exceed your auto policy coverages.

What if you are injured by another driver and that driver is at fault?  Generally the two auto insurance companies will work together to determine fault and pay benefits accordingly.  This resolves the problem in most cases.  If not, or if the amounts paid are insufficient, it may be necessary to resort to the court system to recover damages.

What if the other driver is at-fault and has no (or has inadequate) insurance?  Your insurance company normally covers your medical expenses.  This protection is provided under the uninsured/underinsured motorist coverage.  If you do not have this coverage, then your health insurance usually pays the bills, or you can sue the other party.  Which brings us to the final important considerations.

Consider the “Deductible Gap”

Generally, under a tort system, medical payments under your own policy are limited.  However, in most cases you can choose “additional medical payments” and “Uninsured/Underinsured Motorists” coverages as part of your auto insurance policy.  After years of rising rates, many people may choose to forgo any additional coverages.  This could be a problem if you have high-deductible health insurance, or no health insurance at all.  There is potentially a huge gap between the amount paid under a tort-based policy and your health insurance deductible.  If you have no insurance, the out-of-pocket costs could be staggering.  If you are not at fault in the accident, the tort-based system allows you to go to court to get compensated for these costs, as well as for pain and suffering, but there is a time factor and a lot of out-of pocket expenses involved.

What Does This Mean for Health Insurance Costs?

As more costs are shifted to the health insurance system, your costs are likely to rise.  Furthermore, not everyone has health insurance.

So, What Is Next?

This is a good time to look at your health insurance to make sure it covers you adequately if you drop PIP/No-Fault coverage.  It’s all about avoiding unpleasant surprises!

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