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This article is a part of Wikinvest's Personal Finance section and Guide to Investing. Please contribute or edit to improve it. |
In a no-fault system, your car insurance company will pay up to your policy limit for bodily injuries and property damage resulting from an accident, regardless of which party is at-fault. In an at-fault system, also known as a traditional tort liability system, the car insurance company of the at-fault party pays for bodily injuries and property damage to all parties involved in the accident. Provable negligence, or the ability to prove who was responsible for the accident, is used to determine the at-fault party.
Under current no-fault laws, drivers may only sue for damages if the case meets certain predefined thresholds. These thresholds relate to the severity of injury and usually belong to one of two types:
- Verbal thresholds, which broadly define what (death, dismemberment and/or disfiguration) constitutes a serious injury; or
- Monetary thresholds, which are expressed in dollar amounts of medical bills.
Since high threshold no-fault systems restrict litigation, they tend to reduce insurance premiums and provide quicker payments against claims.
There are currently 12 states that operate under no-fault laws. Florida, Michigan, New Jersey, New York and Pennsylvania have verbal thresholds. Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah use a monetary threshold. In addition, New Jersey, Pennsylvania and Kentucky have choice no-fault laws. In these states, policy holders may opt into a no-fault system or choose to retain their right to sue for auto-related injuries.
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