A more thorough explanation:

No-fault insurance is a type of auto insurance that requires the insurance company to pay for certain losses resulting from a car accident, regardless of who caused the accident. There are three parties involved in the no-fault system: the policyholder, their insurance company, and the other party or parties involved in the accident.

The policyholder's insurance company must cover losses or first-party benefits, which can range from mandatory personal injury protection (PIP) to a comprehensive package that includes PIP, medical fees, lost wages, funeral costs, and other out-of-pocket expenses. For example, in Michigan, PIP payment is required for all reasonable and necessary medical expenses for the policyholder's lifetime. In New York, first-party PIP benefits include all reasonable and necessary medical and rehabilitation expenses related to the accident, 80% of lost wages, a maximum of $25 a day for a year after the date of the accident for other reasonable and necessary expenses related to the accident, and a $2,000 death benefit.

One characteristic of no-fault insurance is that policyholders are restricted by either a monetary threshold or a verbal threshold from suing third parties for tort compensation for pain and suffering. Monetary thresholds allow policyholders to file lawsuits when their medical expenses meet a statutory amount. Verbal thresholds allow policyholders to file lawsuits when their injuries satisfy the criteria for serious bodily injuries.

Variations on the no-fault system include add-on and choice no-fault. Add-on systems, like Oregon, have no-fault systems' first-party benefits without its restrictions on lawsuits. Choice no-fault systems, like Kentucky, allow policyholders to elect either no-fault or tort liability.

For example, if a driver in Michigan is in an accident, their insurance company will pay for their medical expenses for the rest of their life, regardless of who caused the accident. However, the driver cannot sue the other driver for pain and suffering unless their medical expenses exceed a certain amount. In New York, if a driver is in an accident, their insurance company will pay for their medical expenses, lost wages, and other related expenses, but they cannot sue the other driver for pain and suffering unless they have a serious bodily injury.