Auto insurance in New Jersey is mandatory. The penalties for driving while uninsured carry severe penalties, including loss of license for a substantial period of time and possible jail time. Not to mention a hefty fine. The type and cost of coverage in New Jersey can vary significantly depending on the type of policy you obtain. In New Jersey, you have the option of purchasing a standard policy or a basic policy. As their names dictate, one is a policy with “standard” coverages while the other is “basic” in nature. The differences between both policies are rather significant.
One of the biggest complaints of drivers in NJ is that auto insurance costs too much. The Automobile Insurance Cost Reduction Act mandated that a Basic Policy be available to all drivers in NJ, to provide basic coverage. But, the saying “you get what you pay for” really does apply to the basic policy.
The basic policy does not require liability coverage. Simply stated, if you are involved in an accident and are at fault, your assets, including your earnings, are at risk. You will be responsible for the pain, suffering and other personal injury and economic damages that you cause. Your insurer will not be required to hire an attorney to defend you in a lawsuit and you will have to pay for an attorney to defend the case. This can be very expensive. Any judgment obtained against you must be paid by you. The victim can garish your wages and seize your assets to pay the judgment obtained. In short, everything you work very hard for can be taken from you in an instant. The basic policy does allow you to obtain up to $10,000 in liability coverage for an additional fee.
Another major drawback to the basic policy is that it does not offer uninsured or underinsured coverage, not even for an additional premium. Comprehensive and Collision coverages are also not available.
The basic policy also offers Personal Injury Protection (PIP) to cover your injuries in an accident. PIP is no-fault coverage that kicks in if you are injured, even if the accident is your fault. The basic policy starts with a basic limit of $15,000 to cover your medical expenses resulting from an accident, with options up to $250,000 for an additional premium.
The standard by far in purchasing auto insurance in NJ is the Standard Policy. Under this policy, the law requires liability insurance with a minimum limit of
$15,000 for a single death or injury, $30,000 for death or injury to more than one person, and $5,000 for property damage. You can, and should always, opt for more liability coverage. The standard policy provides for up to
$250,000 PIP coverage and provides for underinsured and uninsured motorist coverage. It also allows you to opt for Comprehensive and Collision coverages for additional premmms.
Special Policy for Medicaid Recipients Only
The Special Policy is a new initiative to help make limited auto insurance coverage available to drivers who are eligible for Federal Medicaid with hospitalization. Such drivers can obtain a medical coverage-only policy at a cost of $365 a year. This is also called a “dollar a day policy” and it covers pretty much nothing. No liability coverage, No underinsurance/uninsured coverage, no comprehensive coverage, no collision coverage—you get the point. It only provides emergency treatment immediately following an accident and treatment of serious brain and spinal cord injuries up to $250,000. It also provides a $10,000 death benefit. If you are at fault in an accident and are sued, you are on your own. You will have to hire an attorney to defend you and you will be responsible for payment of any judgment.
I personally think that is policy is completely irresponsible-both for it to even be offered and for people to opt for it. Only when the insured is involved in a catastrophic accident-one requiring emergency medical treatment immediately after the accident-will this policy be useful. And even then, once you are released from the hospital, you are on your own. I see this as an easy moneymaker for insurance companies. The policyholder pays approximately $365 per year for a policy that is not likely to ever be used. And of course, common sense dictates-if insurance companies have a high risk, do you think the policy would only cost $365 per year? It’s cheap because insurance companies don’t carry much of a risk. It is because of policies like this that it is very important for you to have sufficient underinsured/uninsured coverage.
Insurance You Should Buy
In this section we will discuss in more detail the types of coverage that I believe are necessary for every driver to have. The question of what precise policy limit is appropriate is a complex and intrinsically personal one, but I’ll do my best to give you information that is both specific enough to be helpful and general enough to apply to the majority of people.
With the exception of the Basic Policy, a mm1mum amount ofliability insurance is required by New Jersey law and virtually every other state. The important question is whether merely buying the minimum amount is enough. The answer? Absolutely not-not for anyone. New Jersey’s legally required bodily injury insurance limits of $15,000 (one claimant) and $30,000 (all claimants) are woefully inadequate to protect your financial assets. These limits have gone unchanged for the past 30 years, while medical costs have grown exponentially.
You run a stop sign and crash into another car. The driver is taken to the hospital for surgery where she stays for over a month. She undergoes rehabilitation and physical therapy, and is unable to work for two years. Even if the driver earns less than $50,000 a year, the total claim could easily hit $1,000,000. Now compare this to the $15,000 of liability insurance required by law.
This scenario may sound extreme, but it’s not. The above scenario, in fact, is a moderate one. When imagining a car accident, the majority of people envision the kinds of minor fender benders that many of us have experienced and walked away from unscathed: no serious injuries, only mild damage to the vehicles-nothing that would entail hospital bills or lost wages. The reality, however, is often a great deal more severe.
The precise amount of liability insurance you should buy depends largely upon the extent of your assets. Those with extensive wealth are far more likely to be sued for large sums of money. Understanding car insurance means not only peering into the minds of insurance adjusters, but lawyers as well. Personal injury attorneys are far more likely to go after the assets of high net worth individuals, providing them with a greater payoff if they win on behalf of their client, rather than simply advising their clients to settle for the limit of the other driver’s insurance policy.
An attorney accepts a client with injuries whose “value” exceeds $150,000, though the other driver who was at fault-had a liability limit of only
$50,000. Would the attorney immediately advise her client to accept the other driver’s policy limit? Very unlikely, at least not until she has performed an “asset check” on the other driver, looking for assets that might be available to satisfy a potential judgment. In other words, how much money the other driver has will go a long way in determining whether the attorney decides it’s worth all the time and energy to go after personal assets in order to secure for her client the full cost of their injuries.
In the scenario above, it is easy to see that the result could be financially catastrophic for the defendant. But this result could be avoided with an adequate liability insurance policy. You may have heard that you should buy a liability policy with a limit that more or less equals your total assets, the idea being that you are “covering” your assets in doing so. If your insurance equals or exceeds your net worth, so the thinking goes, you’ll never have to worry about having to pay a lawsuit judgment out of your own pocket. This is nonsense, and it’s based on a complete misunderstanding of how insurance and personal injury law work. There’s nothing that says that someone couldn’t sue you for more than your policy limit, requiring you to pay the difference. Your liability insurance is the first line of defense, and a good one at that, but your personal assets remain vulnerable beyond your policy limits.
There is no secret formula to tell you how much liability coverage is enough, but there is a sound principle that can help you make an informed decision. And the principle is this: within reason, and within the confines of your budget, you want the highest possible ratio between your policy limit and your total assets. The smaller your assets look in comparison to your liability coverage, the more likely an attorney would advise her client to settle for your policy limit, leaving your personal assets untouched.
But what about a driver with few or no assets? My advice is to buy a liability policy with as high a limit as you can reasonably afford. Generally, attorneys will not pursue an individual with no assets-the payoff isn’t worth the effort-but we should remember that a New Jersey judgment has a life of twenty years and can be renewed. A judgment, though not as serious as a bankruptcy, can affect your financial life for years to come.
For drivers who finance or lease their vehicles, your financing company will require a minimum amount of liability coverage. You should check with your financing and leasing agreement to see the minimum coverages you are obligated to maintain while the car is financed or leased.
Uninsured and Underinsured Motorist Insurance Coverage
These types of coverages, in my mind, are nearly as indispensable as liability insurance. I realize that some resent having to buy these policies, feeling that it’s unfair to pay for something that is rightly someone else’s responsibility. Many people assume that when one’s underinsured motorist insurance pays for injuries someone else caused, it absolves the negligent driver from having to take financial responsibility for their actions. The other driver fails to buy insurance, causes an accident and doesn’t suffer the consequences. However, this is not actually the case. By accepting payment for your injuries under your uninsured motorist policy, you give your insurance company the right to sue the person at fault for the money it was obligated to pay you-a right that insurance companies often exercise.
And while this type of principled objection is understandable-I certainly believe we all have a duty to carry adequate insurance-it runs up against an unavoidable reality: there are simply too many drivers on the road either without insurance at all, or with policy limits that are negligible in comparison to a modest personal injury claim. Moreover, suing another driver for their personal assets is a time consuming and uncertain process, and one to avoid if at all possible. Uninsured and underinsured motorist coverage saves you from the protracted and occasionally fruitless ordeal of a lawsuit and gives you the resources you need to recover from your accident.
As with liability insurance, a good rule of thumb when it comes to uninsured and underinsured motorist coverage is to buy a policy with the highest limit reasonably available. This critical coverage, after all, is about protecting you and your family.
Personal Injury Protection Coverage (PIP)
Personal Injury Protection Coverage (PIP) is beyond important if you are injured in an accident. PIP pays for your medical bills up to the limits of your policy. Pretty standard, right? Well, did you know that PIP will pay for your medical bills if you are walking down the street and are struck by a car? Yes, walking! If you are riding a bicycle and are struck by a car, YES… you guessed it–PIP pays again. Irrespective of fault, if you’re injured in a car accident, PIP will pay for your medical expenses.
You may be wondering, “Why should I buy medical coverage from my car insurance company when I already have health insurance?” The answer is that there are important differences in what PIP and most health msurance cover.
One important benefit of PIP is that it will cover treatment for injuries you sustained in an auto accident, up to the limit of your coverage with minimal deductibles and co-pay. This coverage is available regardless of who is at fault in the accident.
Under New Jersey’s Standard policy, your PIP coverage is $250,000, although you can (but never should) opt for lesser coverage for a reduction in premium. The savings are not substantial. Under the Basic Policy, PIP coverage is $15,000, but you can (and always should) opt for more coverage for an additional premium.
You elect $15,000 of PIP coverage. Your insurer is only obligated to pay medical bills up to $15,000 unless you suffered “certain injuries” which are discussed below. If you have ever been injured or hospitalized, you know that $15,000 is not sufficient to cover basic diagnostic tests and doctor fees, never mind the cost of a hospital stay. The good news is if you suffer certain injuries, the law requires your insurer to cover you up to $250,000 even if you opted only for $15,000 of coverage. But, what are certain injuries? The law says that “certain injuries” are permanent or significant brain injury, spinal cord injury or disfigurement or for medically necessary treatment of other permanent or significant injuries rendered at a trauma center or acute care hospital imm ediately followin g an accident and until the patient is stable, no longer requires critical care and can be transferred to another facility in the judgment of the physician. That definition does not cover the injuries typically found in motor vehicle accidents, that will cost more than $15,000 to treat but are not considered permanent injuries. In short, the “permanent” injury must require immediate treatment at a trauma center or acute care hospital. It is for this reason that I recommend you obtain $250,000 in PIP coverage. The last thing anyone needs is to be injured in a car accident and to have your own insurance company say, “the policy limits have been exhausted.”
One of the additional benefits of PIP is the minimal deductible and co-pays. For example, if you have a $250,000 PIP limit with a $250 deductable and a 20% co pay of the first $5,000, the most you will be out of pocket is $1,250.00. Medical providers who accept to treat you under your PIP policy are bound to accept a certain fee for work performed as per a statewide PIP schedule. They cannot charge you for the difference between what PIP pays and what they would normally charge, called “balance billing.” The most out of pocket expense you would incur would be your deductable and co-pay and nothing else. Also, any medical provider who is penalized for not following the insurance company’s precertification policy cannot charge you the penalty.
Another advantage of a PIP policy is that it comes with few provisions and exclusions compared to the pages and pages of fine print that usually comprise your average health insurance policy. That means that PIP typically covers medical services that most health insurance policies do not-often including chiropractic care, dental care and others. What’s more, you’re not limited to a single provider. There are no “in-network” or “out-of-network” doctors. You can go to any doctor that is willing to follow PIP procedures. The reason why PIP is broader in terms of the care and providers it will cover is that the situation in which it becomes active is narrower. Your health insurance will cover any illness or injury, regardless of when or how it was caused. PIP insurance, on the other hand, will only pay for injuries sustained in a car accident.
To summarize, a driver should have liability insurance in proportion to his or her assets and adequate to cover the cost of a possible personal injury claim.
Uninsured/Underinsured Motorist Coverage should be as high as reasonably possible for protection against the large number of uninsured or inadequately insured drivers on our highways. The good news is that many relatively high limit insurance policies are reasonably priced in relation to the valuable protection they offer.
Optional Insurance Coverage
In my opinion, one can still have ample protection without buying the following policies, depending on one’s assets and circumstances. For some they are necessary, but not for everyone.
Comprehensive and Collision insurance
Buying comprehensive and collision insurance coverage really depends on how much your car is worth and how much money you would be willing to pay if it were damaged in an accident or stolen. If totaling your car wouldn’t be a financial catastrophe, and if the premiums you would pay feel more burdensome than the risk of damage to your car, it likely means that you can confidently skip comprehensive and collision insurance. Of course, if you are financing or leasing your vehicle, your financing company will require both comprehensive and collision coverages to protect its collateral (your car).
Umbrella policies are best suited to high net worth individuals who have considerable assets to protect. Remember that purchasing an umbrella policy requires a significant amount of underlying liability insurance. For certain people, this type of policy makes a great deal of sense, but for other’s-those with fewer assets, who are less desirable targets for lawsuits-merely buying the amount of liability insurance necessary to consider purchasing an umbrella policy is an unnecessary expense. If you make more money than your auto insurance policy covers, you should have an Umbrella policy. The cost is minimal compared to the peace of mind you will have knowing you are well covered.
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