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UPDATED: NOV. 6, 2019
We represent countless clients who were involved in car accidents. As such, we are constantly working with car insurance issues of all kinds. Some of them are very unusual issues or involve circumstances that are probably not applicable to the average buyer of car insurance. However, one issue that presents itself in many cases is the issue of purchasing too little insurance.
Believe it or not, in New Jersey all car owners are legally required to insure their vehicles, but they are allowed to purchase insurance policies that provide little or essentially no coverage at all. In other words, you can buy a policy that is “insurance” but really doesn’t cover anything. This is surprising to many people and most people that we explain that to don’t even believe it at first. Also, some time ago, we wrote about the practice of car insurance companies “saving you money” by selling you extremely limited insurance policies. Today, we want to point out some of the dangers of purchasing too little insurance coverage.
The major concern with purchasing too little insurance coverage is that you are involved in an accident, it’s your fault, and you caused serious property damage and personal injuries. Most people purchase insurance and think that if they are involved in an accident their insurance company will take care of it. And for many cases, that is exactly what happens. However, smaller insurance policies may have $5,000 of coverage for property damage and something in the range of $0 to $15,000 in coverage for personal injuries. If a person is involved in an accident that is bigger than a “fender-bender”, they could easily cause thousands of dollars in property damage, even if there is no major injury. Imagine getting distracted and accidentally rear-ending a brand new BMW while going 35mph. Although you are insured, the owner of that car may have a claim against you for tens of thousands of dollars. Your insurance will only pay up to the policy limit… and you will be personally liable for the balance! In fact, even if the other person has collision coverage of their own and their own insurance pays for the car repairs, their insurance company could still come after you for reimbursement. Sometimes, these types of situations could saddle a person with a life-altering amount of debt. Similarly, if you injure someone in a crash, your insurance company is only responsible for the amount up to the policy limit. If the injuries are significant, you could be on the hook for a personal judgment.
In these cases, the insured would receive a letter from the insurance carrier notifying them that they would be personally responsible for any amount over the policy limit. If you receive such a letter, you should take it very seriously and present it to an attorney. You would not automatically be responsible just because you receive that first letter (because the case would still be pending). But if you do nothing there is the chance that lawsuit could be filed against you and a default judgment entered against you for a large sum.