The majority of states require that motorists purchase and maintain some sort of Liability insurance in order to compensate other parties for injuries and/or damages that they may cause as a result of operating the insured automobile; almost every state requires that drivers carry property damage liability (PDL). No-Fault insurance, also known as Personal Injury Protection (PIP), pays for the injuries sustained by the policyholder rather than injured third parties.

When referring to a difference in Liability auto insurance and No-Fault policies it is usually in regards to bodily injury protection. As mentioned, most states require that compensation is in place should a motorist damage another party's property, but many states differ when it comes to payment for injuries. The majority of states will require that motorists carry bodily injury liability (BIL), which usually means that if a motorist in such a state is found to be responsible for causing harm to another while operating an insured automobile, the policy provider will pay the for medical care up to the policy's limit.

In states that require BIL, in the event that the at-fault motorist does not have enough coverage to pay for the injuries sustained by the other party or parties, they could be held responsible for any additional compensation that may be needed to cover the injuries of the individual(s) involved. In addition, the other party may also choose to sue for the medical bills that exceed the payment given by the insurer, and can also sue for items such as pain and suffering, lost wages and loss of consortium.

The major difference in No-Fault car insurance coverage is that motorists are responsible for carrying policies that include Personal Injury Protection (PIP). Motorists that are injured in traffic accidents will receive payment from their own insurer regardless of who is found at fault for causing the accident, up to the limits of the policy. States which require PIP do so to help ensure that there is prompt payment for injuries following a collision and also believe that this system helps keep accident-related cases out of the courts. Generally, No-Fault states only allow injured parties to sue if the injuries sustained result in death, permanent disfigurement, broken bones, or other certain serious injuries.

Each state has auto insurance laws set in place and can differ quite substantially from one another. Consumers may want to take the time to fully understand their rights as a motorist and policyholder. It is especially advised to do so if moving to another state to ensure that the laws are not significantly different and become aware of what options are available to motorists.