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What is underinsured motorist coverage? How does it work?

Auto insurance is the law. New Jersey requires every driver to be insured.

But some insured drivers carry only the legally required minimum. What happens if your losses exceed their policy? Your own insurance picks up the slack – if you have underinsured motorist coverage. Read more about this important safety net.

New Jersey law requires accident insurance (sort of)

The State of New Jersey does require auto insurance, but the legally required minimum is one of the lowest in the United States. So even if the other driver is insured, there is a good chance their policy will not cover your damages in a car accident.

The law allows drivers to choose a “Basic” auto insurance policy. This bare bones insurance covers that driver and their passengers … but it does not cover injuries to other people!

Most drivers choose a “Standard” policy. This option does include liability insurance (injury to others), but the minimum coverage is $15,000 per person. If you suffer serious injuries and the other driver has the minimum policy, that $15,000 will not go very far.

Understanding your “underinsured motorist” policy

On your own auto insurance policy, you probably have something called UM/UIM. This stands for uninsured motorist and underinsured motorist. This is your back-up plan in case the other driver (a) has low insurance or (b) no insurance at all.

It gets a little complicated:

  1. Your policy covers the first $15,000 in damages, even if the other driver was at fault.
  2. Then the other driver’s liability insurance pays, up to their policy limits.
  3. Then your UM/UIM kicks in to cover any remainder after the at-fault driver’s policy is exhausted.

Sometimes you end up fighting the other driver’s insurance company. Sometimes you also end up fighting your own insurer if you make an underinsured motorist claim.

Do YOU have enough UM/UIM coverage?

Most experts recommend that your uninsured/underinsured coverage match your liability coverage. For example, if you have $100,000 in liability protection for injuries you might cause to other people, you should also have $100,000 in UM/UIM protection to cover your own family and property.

Your insurance agent can give you a breakdown of what it would cost to add or increase your policy limits. You may be surprised at how affordable it is to bump up your UM/UIM coverage.

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