No fault car insurance and liability coverage – what is it?

When choosing the right policy it’s important to know the difference between no fault and liability insurance. The two offer very distinct coverage, and not understanding the difference can lead to unfulfilled expectations at the scene of an accident.

No fault insurance secures the policy holder against injury, loss or damage regardless of whose fault the accident or incident was. The term no fault insurance is usually used in car insurance laws in Australia, Canada and the U.S., wherein the insured and accompanying passengers are reimbursed without proof of fault. This is one way saving on long-term costs, through the avoidance of litigation with an insurance company. Some critics suggest this type of insurance discourages drivers from learning the rules of the road since they don’t have to worry about litigation with other drivers.

Liability insurance, on the other hand, is a way of protecting oneself from liabilities that are either imposed by claims or lawsuits. This type of car insurance protects the insured if one is sued for certain claims covered by the insurance policy. Liability insurance is specifically designed as a protection from claims of a third party so that the insured will not have to pay a certain amount to the person suffering a loss. This also makes it possible for the insured to be defended by its insurer. The insurer also has the duty to settle a claim and indemnify the insured. The indemnification, however, depends on the policy holder’s premium, since the insurance company will only pay a certain sum that is set in the insured’s policy limit. For claims, the insurance company has the duty to settle claims against their policy holder, but this all depends on the jurisdiction of the insurer.

Knowing these important terms can help you choose the right policy for you. The result can be long-term cost savings and the avoidance of surprises once an accident occurs.