New Jersey and New York are part of a number of states that operate under “no-fault” car insurance laws. No-fault insurance means that your insurance carrier will pay some or all of your medical bills and lost wages after a car accident—regardless of who was at fault.
These no-fault laws are designed to lower the cost of car insurance by eliminating small claims from the courts. No-fault insurance holders benefit from a quick resolution of their claim, timely payment (as opposed to waiting for the case to work through court), and decreased pressure on the court system. As such, no-fault laws have limitations on when an injured driver or passenger is allowed to sue the other driver for damages. These limitations can be monetary (i.e. the insurance carrier will pay for injuries and lost wages up to $250,000) or verbal (i.e. the insurance carrier will pay for all injuries short of dismemberment, death, or permanent injury); New Jersey operates under a verbal threshold for no-fault car insurance. In other words, if you get into a car accident, you are unable to sue the other driver for pain, suffering, or emotional distress unless your injuries reach New Jersey’s threshold for serious injuries.
Under the no-fault system, New Jersey drivers are only able to file a civil lawsuit if the accident resulted in:
- Significant disfigurement
- Significant scarring
- Displaced fractures
- Loss of a fetus
- Permanent Injury
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One important thing to note about no-fault insurance programs is the lack of property coverage. No-fault insurance does not typically include coverage for property damage, including damage to your vehicle after an accident. Coverage for bodily injury liability and property damage are listed as separate coverage, according to the New Jersey Department of Banking and Insurance.
No-fault car insurance is also called personal injury protection (PIP) or First Party Benefits. Under the New Jersey Standard Policy, this coverage includes:
- Income continuation, which pays lost wages up to the amount of coverage you select
- Essential services, which pays for necessary services you would normally do yourself, including cleaning, mowing your lawn, shoveling snow, or doing laundry
- Death benefit, which provides money to family members or estates
- Funeral expense benefit, which pays for reasonable funeral expenses up to the limit you select
- Uninsured motorist coverage, which pays you if you are in an accident caused by a driver without the minimum amount of insurance
New Jersey is a “choice no-fault” state, meaning drivers have the option to choose a no-fault policy or a policy based on tort liability law (meaning he or she will need to sue the other driver to receive full compensation for an accident).
New Jersey drivers are in a unique position. Only 12 states currently have no-fault insurance laws, meaning residents of 38 states are simply required to purchase full tort coverage. And of the 12 states who have no-fault insurance laws on the books, 9 states require drivers to purchase no-fault insurance; in other words, only three states—New Jersey, Kentucky, and Pennsylvania—give drivers the choice whether or not to opt in to no-fault coverage. As a result, it is extremely important for New Jersey residents to understand the benefits and drawbacks of no-fault insurance before making a final decision.