The Insurance Information Institute (III) says no-fault automobile insurance is loosely defined as insurance that allows policyholders to recover financial losses incurred during an accident from their own insurance company, regardless of who was at fault. No-fault insurance was launched nearly 50 years ago when the traditional auto liability insurance system came under fire, according to III. Critics charged that the often lengthy process of determining who caused the accident was neither cost effective nor time efficient. State auto liability insurance laws fall into four broad categories: no-fault, choice no-fault, tort liability and add-on.
No-Fault
The no-fault insurance system was designed to reduce the cost of auto insurance by keeping small claims from entering the court system. No-fault policies require an insurance company to cover the expenses of minor injuries suffered by its policyholders (first party) regardless of who was at fault in the accident. Currently 12 states (Florida, Hawaii, Kansas, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah) and Puerto Rico have no-fault insurance in the strictest sense of this definition.
Choice States
In states with choice no-fault insurance laws (Kentucky, New Jersey Pennsylvania), drivers may opt for either no-fault auto insurance policy or traditional tort liability policy.
Tort Liability
The tort liability threshold permits drivers in no-fault insurance states to sue the other party for severe injuries, if the case meets certain conditions known as the tort liability threshold. They may be expressed in verbal terms (verbal threshold) such as death and extensive or permanent injury or in dollar amounts of medical bills (monetary threshold).
Some tort liability laws require that the disabling effects resulting from an accident persist for a minimum number of days before a lawsuit can be filed against the responsible party. The states with verbal thresholds are Florida, Michigan, New Jersey, New York and Pennsylvania. Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah use a monetary threshold.
Add-Ons
According to Kiplinger.com, under the terms of add-on no-fault coverage your insurance company may offer lower compensatory benefits than true no-fault insurance policies would normally payout. Add-ons, however, allow the injured party to sue for pain and suffering without any restrictions. States with add-on coverage include Arkansas, Delaware, Maryland and Washington D.C.
