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• How to Purchase Automobile Insurance in New Jersey

How to Purchase Automobile Insurance in New Jersey

This writing is conceived to assist you in making an intelligent and financially sound decision in purchasing an automobile policy.

Does the law require me to have insurance coverage on my motor vehicle?

Yes. The owner of every passenger vehicle registered or principally garaged in the state of New Jersey must have liability insurance coverage in the minimum amount of $15,000 to compensate anyone you may have injured or killed in a motor vehicle accident that resulted from your negligence. Certain other types of coverage are required as well. If you do not maintain insurance on your vehicle you are breaking the law and the consequences are extremely serious.

On this issue, you also should know that if you own a registered vehicle that can not be driven, and you fail to maintain insurance coverage for that vehicle, the vehicle will be considered an uninsured vehicle. To avoid fines, penalties or an increase in premiums, an owner of a non-operable vehicle should return the license plates to the DMV so that the vehicle is not considered a "uninsured registered vehicle". This also applies to a registered vehicle that are constantly garaged and never driven.

I do not understand some of the important words and terms used in my motor vehicle insurance policy. Can you explain them to me?

You are not alone. Insurance policies use words and terms that are difficult to understand. These words and terms are very important. You must learn and understand them. You can not make an intelligent decision on the type of insurance coverage available to you without a working knowledge of these words and terms. Here is an explanation of some of the more important ones.

Personal Injury Protection Coverage. (PIP). This coverage is sometimes known as "PIP". It pays your medical providers in the event you are injured in a automobile accident. Payment from your insurance carrier is required irrespective of who caused the accident. PIP coverage may also reimburse you for other losses or expenses, including, lost wages, the cost of hiring domestic help to care for your family and home, as well as, death benefits and funeral expenses.

Liability Coverage. This coverage pays others for any property damage or personal injuries they may have sustained as a result of an accident that you caused. This coverage also requires your insurance carrier to provide you with a lawyer in the event you are sued because of an automobile accident.

Uninsured Motorist Coverage. (UM Coverage) This coverage will provide you with protection for property damage or personal injuries you may have sustained if you are involved in an accident caused by an uninsured motorist. By way of example, if you are involved in an accident where the other driver is uninsured and his fault caused $25,000 in damage to your vehicle, your insurance company will pay to have the vehicle repaired, provided of course, your uninsured motorist coverage exceeds $25,000. There may be a deductible.

Underinsured Motorist Coverage. (UIM Coverage) This coverage will pay for injury or damages you may have sustained in an accident caused by another driver whose insurance coverage is less than the amount needed to compensate you for your property damage and personal injury you may have sustained. Again, by way of example, if you are involved in an accident where the other driver who caused the accident has $15,000 of liability coverage and you sustained $25,000 in property damage, you will collect $15,000 from the other driver’s insurance carrier and the balance (i.e. $10,000) from your carrier, less the deductible, if applicable.

Collision Coverage. This coverage will pay for damages your vehicle has sustained in an automobile accident where you are at fault. You may also look to this type of coverage even when you are not at fault to expedite a repair of your vehicle. Under these circumstances, your insurer will then seek reimbursement from the other driver’s insurance carrier.

Comprehensive Coverage. This coverage pays for any damages to your vehicle, other then collision, including, theft, vandalism, flooding and fire.

Do I have any options in the types of motor vehicle policies I can purchase?

Yes. You will have many options available to you when you purchase your insurance policy. To recognize your options you must recognize the different types of policies that are available.

• Standard Policy. This policy is the most popular in New Jersey. It provides a consumer with various coverage opportunities. It will allow you to purchase PIP, Liability, UM/UIM, Collision and Comprehensive Coverage. The maximum policy limits (i.e. maximum amount of money your insurance carrier will have to pay in the event an accident occurs) available under a Standard Policy are developed below It is important to know here, however, that although you have options to choose various levels of PIP coverage ranging from $15,000 to $250,000, if you do not choose one of these options, you will be given the $250,000 coverage automatically.

Basic Policy. This policy offers $15,000 in PIP coverage under ordinary circumstances and $250,000 PIP coverage for catastrophic injuries. Property damage liability is limited to $5,000. You may also purchase $10,000 of liability coverage. Some companies, however, allow you to buy collision and comprehensive coverage. You cannot purchase UM/UIM coverage, however, with this type of policy. The maximum policy limits for a Basic Policy are recited below:

	STANDARD POLICY	BASIC POLICY
BODILY INJURY LIABILITY	As low as: $15,000 per person, $30,000 per accident. As high as: $250,000 per person, $500,00 per accident	Coverage is not included, but $10,000 for all persons, per accident, is available as an option.
PROPERTY DAMAGE LIABILITY	As low as: $5,000 per accident As high as: $100,000 or more	$5,000 per accident
PERSONAL INJURY PROTECTION	As low as: $15,000 per person As high as: $250,000 or more Up to $250,000 for permanent or significant injury regardless of selected limit	$15,000 per person, per accident Up to $250,000 for permanent or significant injury
UNINSURED / UNDERINSURED MOTORIST COVERAGE	Coverage is available up to amounts selected for liability coverage	None
COLLISION	Available as an option	Available as an option from some insurers
COMPREHENSIVE	Available as an option	Available as an option from some insurers

Special Automobile Insurance Policy. This is a relatively new policy made available to drivers who are eligible for federal medicaid with hospitalization benefits. The cost is about a dollar a day. For further information on this policy, you may contact one of the reputable agents identified below or contact New Jersey’s Department of Banking and Insurance (800) 446-7467.

What is the Assigned Risk Market?

When you file an application to obtain motor vehicle insurance, the insurance carrier will assess points against you grounded upon certain considerations, including your driving experience, your credit, prior motor vehicle violations or accidents and suspensions. These points are not the same points you receive from New Jersey’s Motor Vehicle Commission (MVC), when you violate the motor vehicle laws. These MVC points will affect your insurance points, however. Generally, if you have complied seven or more insurance points, for a three year period prior to the date of your insurance application, your insurance carrier can deny your application and refer you to a government controlled insurance plan, which is commonly known as the "Assigned Risk Market" . You will be removed from the assigned risk market if your total point level falls below seven when you seek to renew your policy or change insurance carriers the next renewal year.

You can also be places in the "Assigned Risk Market" if you allow your insurance to lapse for more than 30 days.

How can I save money when I purchase my motor vehicle insurance policy?

Before answering this question, it is important to know that an insurance policy is conceived to protect your financial stability if your fault produces an unexpected liability. Thus, your income, the value of your assets, and your financial responsibilities to your family are critical considerations in your decision to purchase a motor vehicle insurance policy. If you have little or no assets, marginal income and no family, you may consider a Basic Policy. If however, you have a home, a family and a good source of income you will probably purchase a Standard Policy, which will give you higher coverage and more options. Obviously, the type of policy that you purchase will influence the amount of your premium. Always remember that if a claim is made against you because of an automobile accident and that claim exceeds your insurance coverage, the claimant can attack your personal assets and income.

You can control the cost of your insurance policy by the choices you can make on the policy’s limits, deductibles and options. Those terms are defined below.

Policy Limit. A policy limit is the maximum amount of money your insurance carrier will be required to pay for a claim resulting from an automobile accident. Obviously, a policy that provides a $15,000 limit for personal injury liability claims, (i.e. claims made against you for personal injury you may have caused) will cost a lot more if the coverage was $250,000.

Deductible. This is the money that you have to pay before the insurance carrier will be responsible to pay under the policy. If you purchased comprehensive coverage on your policy with a $500 deductible and your vehicle is damaged by fire, you will be required to pay the first $500 of the repair costs. Deductibles vary between insurance companies and the type of coverage that you purchase.

Options. You will be able to broaden the type of coverage you will receive from your insurance carrier with options. Thus, while basic PIP coverage requires your insurance carrier to pay for your medical bills up to the policy’s coverage limit, you may elect to purchase other PIP options, including payment for lost wages, domestic help, death benefits and funeral expenses.

Here are some of the choices that you will have available for you that can determine the amount of premium you will pay for a motor vehicle insurance policy.

• Right to Sue Option. If you purchase a Standard or Basic Policy, you have a choice between an unlimited right to sue and a limited right to sue. Purchasing a Limited Right to Sue Option will save money but, will limit your right to file a lawsuit against others who injure you. Under the Unlimited Right to Sue Option, you can file a lawsuit against anyone who has hurt you in an automobile accident, irrespective of the seriousness of the accident. Under the Limited Right to Sue Option, you cannot sue another who has caused an automobile unless you can establish an extremely serious injury, including, among other things, a loss of a body part, a significant disfigurement, a significant scarring, a displaced fracture, a loss of a fetus, permanent injury or death.

Insurance carriers have a vested interest in making sure that the consumer purchases a policy that contains a Limited Right to Sue Option and, in that effort, the insurance industry has attempted to convince the consumer that the purchase price for the Unlimited Right to Sue Option is not financially sound. Do not rely on this information, check with your insurance agent first. Plainly, this is a very important issue in your decision to purchase a motor vehicle insurance policy.

• Combine Single Limit Coverage. Most insurance policies provide liability coverage on two levels of liability. The first level will identify the maximum amount to be paid to anyone individual involved in an automobile accident. The second level fixes a maximum amount for all injuries sustained by all people injured in that accident. Thus, if your liability coverage is $100,000 per individual and $250,000 total per accident and, you cause an automobile accident where the only occupant of the other vehicle was the driver who sustained serious personal injuries with a value of $250,000, your insurance carrier will be responsible to pay only $100,000. This can prove to be troublesome. One of the options available to you is called a Combined Single Coverage Limit which offers a maximum limit of protection per accident without regard to the number of people involved in the accident. So, if we presume the same hypothetical facts recited above but change the policy to include a $250,000 Combined Single Limit Coverage, your insurance carrier would have to pay that driver the entire face amount of your policy or $250,000 and, as a result, your personal assets will not be jeopardized. This is another important decision.

Personal Injury Protection Coverage. This area of coverage has a whole host of options deductibles and limits. Here are some of the major ones.

Deductibles

If you require a high level of PIP coverage, you can contain your premium by increasing your deductible. Ordinarily, your deductible will be $500. You may, however, increase your deductible as high as $2,500.00. When you make this decision, remember that all motor vehicle insurance policies require you to assume a 20% co-pay responsibility on the first $5,000 medical expenses. Thus, if your deductible is $5,000, you will be required to pay the first $5,000 in medical expenses and $1,000 of the next $5,000 in medical expenses because of the co-payment responsibility in your policy.

Other Health Care Coverage

You can achieve other savings by making your private health insurance company, the primary source of coverage if you are injured in an automobile accident. You must first determine from your health insurance carrier whether it will assume this primary responsibility. Be very careful, not all healthcare carriers will agree to this. Medicare and Medicaid do not. In all cases, make sure you get your health insurance carrier to commit to their position, in writing, and give that document to your insurance agent.

Additional Coverage Options

You may select other types of coverage for your PIP benefits other then payments to medical providers. These options include: (a) income continuation benefits that will pay you a sum of money if you cannot work due to an automobile accident with minimum coverage in the amount of $100 a week capped at $10,000 and, maximum coverage in the amount $700 a week without a cap; (b) essential services that pays for domestic help in your home with minimum coverage in the amount of $12 a day capped at $8,760 and maximum coverage in the amount of $20 a day capped at $14,600; (c) death benefits that will pay to your estate all unused income continuation and essential service benefits in the event of death; and (d) funeral expenses will pay for your funeral expenses up to the limit of your policy with a maximum coverage of $10,000 in death benefits and $2,000 in funeral benefits.

Comprehensive and Collision Coverage

. Here too you can save some cost in purchasing your motor vehicle policy by increasing your deductible. Ordinarily comprehensive and collision coverage deductible is $750. Maximum, deductibles can be as high as $5,000 with some insurers.

• Excluded Drivers. You can limit your insurance coverage to certain specified drivers and exclude others. This type of option is known as the Named Driver Exclusion. If an excluded driver operates your automobile for any reason and is involved in an automobile accident, you are not insured for collision and/or comprehensive coverage, which means you will be personally responsible for damage to your own vehicle.

When a prospective insured seeks either a new or renewal coverage, New Jersey law mandates that an insurance provider, including an insurance agent, broker or insurer to provide a prospective insured with three coverage options. The agent, broker or insurer must advise the prospective insured how each choice affects the premium charged and coverage afforded if an accident occurs.

Before selecting an insurance policy, the insured should ascertain what services a insurer offers, how it handles claims, and even its financial condition. Most carriers have their own websites which describe their services and procedures as well as provide answers to frequently asked questions and contact information. Other websites provide financial information relating to insurance of carriers: www.ambest.com, www.insbuyer.com, www.moodys.com, www.standardpoor.com, and www.weissratings.com.

The goal of The Department of Banking and Insurance is to protect and educate New Jersey residents regarding automobile insurance. The Department’s website (www.njdobi.org) provides links for finding an auto insurer, an interactive purchasing planner, premium comparison, insurer ratings. The site also contains information regarding consumer issues and information, shopping information, consumer scenarios, consumer guides, safe driving courses and coverage information.

Other things that can reduce your premiums are:

Insure two or more vehicles on one policy.

Disclose safety features on each vehicle, i.e. anti-lock brakes, air bags, passenger restraint system, anti-theft devices and recovering systems.

Good school grades can help a youthful driver.

Take a defensive driving course that is approved by MVC. You can locate an accredited school at (888) 486-3339.

This author has found these insurance agencies to be rather reputable and capable of providing a consumer a competitive premium price:

The Geisenheimer Agency

39-40 Broadway

Fair Lawn, New Jersey 07410

(201) 794-7200

Kozma Insurance Agency

40 Van Winkle Avenue

Garfield, New Jersey 07026

(973) 478-7111

Uninsured/Underinsured Motorist Coverage. One of the most important decisions you will have to make in selecting an insurance policy relates to your right to sue another driver in the event you are injured and you, your family and other relatives living with you are injured in an automobile accident because of the fault of another driver.

How are my premiums determined?

Under the current law in New Jersey most insurance companies have created a tier rating system. Others may use an insurance point score system.

The Tier System

Under the tier system, drivers are assigned to a specific risk level or tier. Each insurer can create their own tier rating system provided it can prove that its criteria for tier rating is not random or unfairly discriminatory and the tiers are reasonably based upon its actual loss experience. There is no limit to the number of tiers an insurer may create. What is important for one insurer may not be as important for another. Therefore an insurance buyer should look at the tier systems created by various insurers and the rates charged for each tier before purchasing an insurance policy.

All insurers will have a base rate or "standard tier." A driver who has favorable risk characteristics may be placed in a preferred or low-rate tier. A driver who does not have favorable characteristics may be placed in a high-rate tier.

In determining which tier a driver may be placed, an insurer will look at a number of risk factors. Some of the most common of these factors are recited below:

Driving Record

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The MVC keeps a record of each driver. In addition to general information such as name, address, date of birth and social security number, the MVC also records every moving violation, suspension, and at-fault accident. Insurance points are assigned for each of these events.¹ An insurer can charge higher premiums for a driver who has violations, suspensions, or accidents. Drivers with numerous points are considered to be "high risk" drivers. A driver who has little to no points is considered to have a "clean record". An insurer’s underwriting guidelines will determine the type and number of violations incurred during a specific time frame in order to determine if the applicant is a high risk driver.

Driving Experience

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Statics reveal that younger drivers are involved in more accidents than any other group of drivers. Therefore, insurers generally charge higher insurance rates for drivers under 25 years of age. In fact, insurers automatically assess newly licensed drivers, regardless of age or gender, three insurance points. One point is removed each year for the next three years. Since a newly licensed driver begins with three points on their driving record, it is very important that the driver avoid traffic violations or accidents. If a youthful driver accumulates seven or more insurance points, he/she may be placed in the "Assigned Risk Market." A driver should ascertain whether a insurer offers discounts for a student who has completed driver training, maintains good grades or is away at college.

Vehicle Type

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Some vehicles cost less to insure. Older cars require less insurance, while newer, more luxurious vehicles cost more to insure. The premiums for the different makes and models of vehicles vary among insurers. It is therefore important to compare costs among the insurers to make sure that you obtain the best coverage for the best price for your needs. Vehicles equipped with anti-theft devices may qualify for discounts. An insured should discuss this consideration with his/her insurance agent.

Geographic Location

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Your insurance premium is influenced by the area in which you drive and garage your vehicle. An insurer will charge higher rates based upon the number of insurance claims filed by policy holders in a driver’s geographic location.

Age and Gender

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An insurer may charge higher rates based upon a driver’s age and gender because statistically young male adults have a higher number of accidents and insurance claims.

Marital Status

Statistics show that married couples have less accidents and file less insurance claims. Their insurance premiums are generally lower than those of single people.

Vehicle Use

.

An insurer will look at the insureds use of the vehicle in determining the amount of the insurance premium. An insurer will look at whether a vehicle is used for business or personal, the distance between the driver’s work place and home and the total number of miles traveled in the preceding year. Obviously, the greater the distance traveled, the higher the insurance premium.

Policy Choices

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Numerous choices to a policy may affect the amount of an insurance premium. Your choices relating to deductibles, coverage, adding and/or removing a vehicle, etc. from policy can affect the amount of premium an insurer charges. See information above for a more specific analysis of these issues.

• Insurance Point Score System.

Some insurance carriers look at certain factors to create an insurance point score to ascertain a drivers’s insurance risk. These factors may include, the driver’s credit history, driving record and other considerations. The insurance score is designed to protect consumers and encourage competition among carriers. An insurer must submit a copy of its scoring plan including statistical proof for the plan and a list of the factors used in developing the plan to the Department of Banking and Insurance for approval before it can be used.

Financial institutions will use a credit score to determine if a person will repay a loan or credit card debt. An insurer will also use an applicant’s credit history to ascertain the likelihood of a driver filing an insurance claim. Credit reports provide a person’s payment history (i.e. past and current including the number and times of late payments), length of credit history (i.e. how long a driver’s credit has been monitored); negative items (i.e. foreclosures, bankruptcy, collections, liens, judgments, etc.), type and number of open credit lines (i.e. major credit cards, store credit cards, bank loans, finance company loans, etc. and whether a driver uses the credit), and debt-income ratio (i.e. how much a person owes versus how much credit is available to a person).

When utilizing a driver’s credit history as a factor for the insurance score, the insurer must follow certain guidelines. An insurer must provide written notice to existing and prospective insureds of its practice to assign an insurance score as well as the factors which determine that score. Special consideration must be provided to a driver’s whose credit has been directly affected by extraordinary life circumstances including death of a family member, catastrophic illness or injury, divorce, temporary unemployment or identity theft. Moreover, a insurer cannot discriminate against driver without a credit history or a driver who has not filed a claim or been convicted of a moving violation within the past seven years.

Each insured determines how much emphasis to place on each credit factor. It is important to monitor your credit score annually, correct any inaccurate information and use credit wisely. State and federal law requires each of the three major credit reporting agencies to provide a person with a free annual report. (Free reports may be obtained by calling 1-877-322-8228, going online at www.annualcreditreport.com or by contacting the credit reporting agency directly: Equifax at 800-685-1111, Experian at 888-397-3742 or TransUnion at 800-888-4213.)

A insurer may not use a credit score to deny, cancel or not renew coverage. Nor can a insurer consider use sex, age, race, ethnicity, religion, income, address or unpaid bills as a factor in determining a driver’s insurance point score. Moreover, a insurer cannot offer more or less favorable premium payment plans based upon a driver’s credit score.

To get brokers or insurers best premium, an in