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Underinsured Motorist Coverage - What is it and why is it important?

By Len Mosco – Licensed New Jersey insurance agent for over 30 years

You may have heard the term, "Uninsured Motorist Coverage" but do you really know what this coverage is, what it does and why it's so important? When I ask most people if they know what the Uninsured Motorist Coverage portion of their auto insurance is and what it protects, they often do not realize the scope of protection that is offered as well as the usually inexpensive cost to have higher limits of coverage.

Uninsured Motorist and Underinsured Motorist – Important but often overlooked Coverages

In the state of New Jersey auto insurance policies actually have two specific coverages that help if you are involved in an accident with an uninsured or underinsured driver: Uninsured Motorist Coverage and Underinsured Motorist Coverage. These are two of the most important coverages on your auto insurance policy and yet many times ensuring you have the proper limits of coverage is overlooked. I will explain these two coverages and how you can properly protect yourself.

Uninsured Motorist Coverage Explained

In New Jersey, auto insurance companies have a mandatory coverage built into all policies to protect you in the event you are involved in an accident with an uninsured driver i.e. a person driving a car without insurance. As in most states it is illegal to drive without auto insurance in New Jersey. According to Patrick Schmid, director of research for the Insurance Research Council (IRC), a nonprofit organization, as of July, 2011, 11.2% of New Jersey drivers were driving without mandatory auto insurance. In essence, approximately 1 out of every 10 cars on the road in the state of New Jersey do not have auto insurance.

What happens if you are hit by an uninsured driver?

Uninsured Motorist coverage can pay for the damages to your car.

So here is a scenario. You are minding your own business and driving down the road. A red light is coming up and so you slow down and eventually brake and stop at the light. Then Bam! You are hit from behind while you were stopped at the red light. Not your fault whatsoever (in fact, in the state of New Jersey, if you are hit from behind, there is no comparative negligence, meaning that the person who hit you is 100% responsible for causing the accident and for the damages to your car). Thankfully you are fine and step out of your car to asses the damage and to speak with the person who was driving the other vehicle.

That person may actually have an insurance ID card to show the police officer when they arrive but in fact, not have insurance (usually an insurance ID card is mailed in the beginning of the policy renewal so you can have it for the year or six months to come). The person who hit you may have had coverage at one point but due to missing an installment payment, their policy has lapsed and they do not have coverage. As noted above there are many drivers who probably know they do not have any car insurance in place but unfortunately still drive.

Now what? This person who "rear ended" you is 100% at fault but later you find out that they did not have insurance coverage in place when they hit you. If you have collision coverage on your car, you can go through your own policy to have your car repaired but there will be a deductible, (usually a $500 or $1,000 deductible). Why should you have to go through the inconvenience of using your insurance and paying for your deductible if it was 100% the other person's fault? This is where Uninsured Motorist coverage can help. Your own policy's Uninsured Motorist coverage can pay for the damages to your car rather than submitting a claim through your collision coverage.

Another interesting point to know is that putting a claim through your uninsured or underinsured motorist's coverage will not have a negative affect on what you pay for your auto insurance in NJ.

What happens to the person that hit your car? Do they simply get away with driving without insurance and have no more responsibility? Absolutely not! In fact, usually they will incur a loss of their driving privileges for a period of time and heavy fines for driving in the state of New Jersey without mandatory auto insurance.

And there is more. Your insurance company, who just paid you through the Uninsured Motorist coverage on your policy, will usually go after the person who hit you and institute a subrogation against them i.e. they will seek reimbursement from the person in the amount of the damages that they paid to you. If you have collision coverage on your car and you are hit by an Uninsured Motorist one option would be for you to use the Collision portion of your coverage and get paid for the damages to your car that way, minus your deductible, which is usually either $500 or $1000. Sometimes a car you own will not have collision coverage as it may be an older model car or you may have chosen to remove collision coverage due to the added cost to have it vs the book value of your car. This is where your Uninsured Motorist coverage comes in ... it pays for the damage to your car even if you don't have collision coverage.

Underinsured Motorist Coverage Explained

OK, so the driver that hit your car and has caused the accident actually does have insurance coverage. They are not Uninsured but they do not have very good (or higher) limits of coverage. Here is a scenario: Your car has a value of $10,000. You were hit from behind while waiting at a stop sign by someone who wasn't paying attention. Your car took a good hit and unfortunately is considered a total loss i.e. your car will cost more to repair than it is worth. The responsible party has insurance but has the lowest limits allowed by law in New Jersey (this is usually what is known as 15/30/5 $15,000/$30,000 Liability with $5,000 property damage coverage). What was that? $5,000 of "Property Damage" coverage? Wait, they hit your car causing $10,000 of damage and they only have $5,000 of Property Damage coverage. This would mean they are "Under Insured". However because you have Underinsured Motorist coverage on your policy and you were hit by a person who actually was under insured, you can again collect the money to repair or replace your car from your own policy.

Liability Protection For Bodily Injury

With both uninsured and underinsured motorist coverage there is also a section that would protect you for liability - in the event you want to sue the responsible party for bodily injuries you may have suffered in the accident. If an Uninsured motorist were to hit you and injure you, even though they were Uninsured and didn't have automobile insurance coverage, the liability portion of your Uninsured Motorist coverage would protect you. This also applies to the reponsible party being under insured. They have hit your car in an accident. They have coverage but they have very low liability coverage. They are now considered under insured, meaning they do not have a decent amount of coverage. Your Under Insured Motorist coverage will kick in and protect you but only up to the limits of Uninsured and Underinsured Motorist coverage that you selected. Lets talk about this as it is very important.

Take the time to look over these options on your auto policy

Look over your Uninsured and Underinsurance Motorist coverage options
Make sure to review your Uninsured and Underinsured Motorist coverage options with your insurance agent.

In my over 30 years of writing auto insurance in the state of New Jersey, I can't begin to tell you how many new customers would bring me a copy of their existing auto insurance policy that they had with another carrier only to find out that they have the lowest limits of Uninsured and Underinsured Motorist coverage available.

In most cases, that's the first thing I would look at. They may have been sold a solid policy with good limits of liability and property damage, for example $100,000/$300,000 With $50,000 property damage, but for some reason their existing agent or carrier may not have explained that they could raise their limits of Uninsured and Underinsured Motorist coverage to "match" their limits of liability and property damage. Perhaps their agent or carrier did explain that this could and should be done but the customer chose to not raise the limits to a safer amount. It would not be unusual to see auto insurance limits of: $100,000/$300,000 liability with $50,000 of property damage and then see the Uninsured / Underinsured Motorist limits of $15,000/$30,000 liability with $5,000 of property damage. In New Jersey you are able to raise your Uninsured and Underinsured limits to match you main coverage. In almost all cases, the cost to raise your Uninsured and Underinsured limits to match your main coverage limits is only a few dollars compared to the annual premium that you pay.

My suggestion is to take out a copy of your auto insurance policy declarations page and look at your liability and property damage limits and compare them to your Uninsured and Underinsured Motorist coverage limits. If they are inconsistent or are showing lower limits of coverage, contact your agent or insurance company right away to discuss this important and usually inexpensive option. You can also get a free review of your current New Jersey auto insurance policy through - click here to have an experienced NJ auto insurance agent look over your current policy and see if there are ways to improve your coverages.

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