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Under no-fault insurance, policyholders may seek reimbursement from their own insurance company without proof of fault; but they are also restricted in their right to seek compensation through civil lawsuits for injuries caused by the at-fault party.

The goal of no-fault insurance is to provide quick payments for injuries and damages while lowering premiums by avoiding costly litigation expenses over the cause of accidents. Each policyholder is compensated by his or her own insurance company. In exchange, they are restricted in their right to file in small claims court.

The upside to no-fault insurance is that it insulates victims in areas with a high number of uninsured motorists. Uninsured at-fault motorists are frequently judgment proof because they have no means to pay the damages anyways. Possessing a no-fault policy also protects a person from being sued.

There are normally limits as to what no-fault coverage will provide. Should your medical bills or lost wages exceed the policy limits, you will not receive additional reimbursement from your insurance company. It is critical to understand what your policy covers.

While suing the at-fault party is discouraged, the rules dictating when and where you are allowed to sue vary by state. If certain conditions are met, you may still sue for severe injuries (these conditions are known as the tort liability threshold).

Insurance providers who provide no-fault policies prefer a qualitative verbal threshold on the no-fault policy as opposed to a quantitative monetary threshold before permitting litigation. However, this also varies by the state.

A quantitative monetary threshold sets a specific dollar amount that must be spent on medical bills before litigation is permitted. However, this encourages policyholders to exaggerate or inflate their medical costs in order to meet the threshold limits. The monetary thresholds can vary greatly.

A qualitative verbal threshold removes any incentives for exaggeration, but faces a broad and somewhat subjective interpretation by the courts which can lead to over-compensation. Remember that this can swing both ways.

Victims with no-fault insurance and subtle injuries from an accident may find it difficult to seek redressing or additional compensation due to the restrictions on litigation.

No-fault insurance has been the center of many fraudulent claims including complicated organized criminal rings.

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