insurance

Threshold (Insurance)

A minimum dollar amount of medical expenses or degree of injury that must be reached before certain insurance benefits become available or before a person can pursue legal action. Thresholds are commonly used in no-fault auto insurance and personal injury protection coverage.

Example

“Under Michigan's no-fault law, drivers must reach a $6,000 medical expense threshold before they can sue the at-fault driver for pain and suffering damages.”

Memory Tip

Picture a doorway threshold - you must step over it to enter, just like medical costs must go over the threshold amount to unlock certain benefits.

Why It Matters

Thresholds help control insurance costs by limiting access to certain benefits or legal remedies to more serious cases, preventing minor injuries from generating expensive lawsuits. Understanding your state's threshold requirements helps you know when you can pursue additional compensation beyond basic insurance benefits.

Common Misconception

Many people think thresholds apply to all their insurance benefits, when typically they only apply to specific coverages like the right to sue for pain and suffering. Your basic medical coverage and other benefits usually start immediately regardless of threshold requirements.

In Practice

In Florida, Lisa is injured in a car accident with $4,500 in medical bills and significant pain. Her state has a $10,000 medical expense threshold for lawsuit rights. Since her bills don't reach the threshold, she can only collect from her own PIP insurance and cannot sue the at-fault driver for pain and suffering. If her medical bills were $12,000, she could pursue a lawsuit for additional damages beyond the PIP benefits.

Etymology

From Old English 'threshold' meaning the bottom of a doorway, metaphorically representing the minimum level that must be crossed to enter or access something, in this case insurance benefits.

Common Misspellings

threshholdthreshold insurencetresholdthresold

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