Do I Have the Right Car Insurance?
UNFORTUNATELY, by the time someone asks this question it is already too late. Usually, THIS question comes up AFTER an accident occurs and the victim is stuck with the insurance choices they have already made. The purpose of this letter is to give our clients some idea of what the choices are BEFORE you are involved in an accident. To best explain your choices it is necessary to understand what car insurance is and how it works.
In 1972, New Jersey passed laws that require car owners to purchase insurance that includes bodily injury and property damage liability coverage to protect the owner/insured for claims against them; uninsured motorist coverage to protect the owner/insured if they are injured in an accident with an uninsured driver; and personal injury protection coverage to pay for accident related medical expenses, loss of income or loss of essential services.
The reason for this required insurance is to provide prompt compensation to people injured in car accidents and to provide financial security to cover those claims. This law allows you, as a car owner, to buy insurance that protects your own financial assets if you injure someone in a car accident. In addition you can buy insurance that will provide coverage to you, family members who reside with you and to occupants of your car if they are injured in an accident caused an uninsured or under insured driver.
A “standard” policy must provide liability and uninsured motorist coverage with minimum limits of $15,000 per injured person with a total of $30,000 per accident. This is the MINIMUM amount of coverage. Oftentimes your insurance agent will tell you that this MINIMUM coverage combined with collision insurance provides you with “FULL” coverage. That is incorrect. This coverage only protects you up to $15,000 per injured person and $30,000 TOTAL no matter how many people are injured. As an extreme example imagine you are responsible for an accident with a minivan containing seven passengers, all of whom are injured. This “FULL” coverage will only provide you with liability insurance of $30,000 for all seven injured people, after that you are on your own. If it is your family of seven in the minivan and you are all injured by an uninsured driver your insurance company will only provide $30,000 in coverage to be divided amongst the seven injured family members.
Most people are unaware that you have the option to buy additional uninsured coverage up to $250,000 per person and $500,000 per accident split limits or $500,000 single limit. The sole requirement is that you must also increase your liability coverage to the same amounts. Your insurance agent often does not suggest you increase your coverage to better protect yourself and your family for one simple reason, their profit is in writing the initial policy. Premium increases for more coverage are relatively minor compared to the initial cost of the policy and do not make up for the greater financial exposure to the insurance company should serious injury occur.
When asked, I recommend that, in a perfect world, you purchase car insurance with liability and uninsured/under insured coverage of $500,000. In addition, you should purchase a personal catastrophe umbrella with liability limits of $1,000,000. Some insurance companies offer an umbrella with uninsured/under insured motorist coverage of $1,000,000. Although this increase will raise your premiums, I think, after the initial “sticker shock” of the standard policy, you will be surprised to learn it will be less than you had feared.
In addition, standard policies provide Personal Injury Protection (PIP) benefits with medical expenses up to $250,000 and a deductible of $250.00. The law allows you to reduce the amount of medical expense coverage as low as $15,000 and to increase the deductible to as high as $2,500.00. If you figure it out, the $15,000 of coverage with a $2,500 deductible only provides you with $12,500 worth of coverage if you have a severe injury. Worse if your injury is not severe and you have relatively typical medical treatment (under $2,500) your car insurance provides you with NO coverage. This option is a trick it saves you very little but reduces the insurance companies responsibility from $250,000 to $12,500. The small amount of savings on your premium does not justify the tremendous loss in benefits. I recommend that you reject the option and purchase the full PIP coverage provided by the standard policy.
Recently, a new option has surfaced. This option allows you to select your health insurance, instead of your car insurance, to cover your accident related medical bills. In return your car insurance company will slightly reduce your premiums. On its face this seems like a great idea for those of us who have health insurance. However, there are several dangers to this option. The first is if your health insurance has a “cap” on benefits you lose the additional $250,000 of coverage your car insurance would provide if you suffer a catastrophic injury. Also you would make your accident related treatment subject to your health insurances deductibles and limit your treatment to “participating providers”. Finally, if you recover financial compensation for your injuries suffered in the accident you are responsible to pay your health insurance company back out of your recovery. You are NOT required to reimburse your car insurance for your PIP benefits. This reimbursement will significantly reduce any recovery you may obtain.
Finally, 95% of car owners in New Jersey select what is known as the “Limitation Upon Lawsuit” or “Verbal” Threshold Option on their car insurance. Although this option does save you approximately $400 per year it is important that you realize that if you make this selection, you are severely limiting your rights to be compensated from the person who injured you. This option ONLY allows compensation for an injury that falls into one of the following limited categories:
- Significant disfigurement;
- Displaced fractures;
- Loss of a fetus; and
- Permanent injury, provable by objective medical evidence, which will not heal to function normally even with medical treatment.
As you can see the above list is extremely limited. Please notice terms such as “pain” “suffering” and “disability” do NOT appear anywhere on this list. If you select this option you can suffer an injury that leaves you in constant pain for the rest of your life, but if the injury does not fit in one of the 6 categories listed above you are not permitted to recover financial compensation.
I understand the savings provided by the “Limitation Upon Lawsuit” may be substantial, therefore I only suggest that you carefully consider what you are giving up when you make this selection.
Car ownership is a serious and complicated matter, with serious risks and obligations, more serious than many contemplate…..often until it is too late. If you own a car, you must accept the responsibility to purchase insurance that will provide you with adequate coverage if you are injured in an accident and will protect your assets if someone else is injured. I am certain when you purchased your car you researched it and chose wisely. Please take the same care and choose your insurance coverage wisely.