We purchase insurance to protect ourselves against a particular risk. When it deals with automobile coverage, one of the reasons is to protect ourselves from our own negligence and/or the negligence of others with respect to the operation of a motor vehicle. When we purchase Bodily Injury coverage from an insurance company, this is the amount that your insurance policy will pay when you or an insured person becomes liable for a bodily injury or death caused by your automobile. How do we decide how much coverage to purchase?

First, we must see what New Jersey law requires as a minimum amount of coverage. There are two types of Bodily Injury coverage in New Jersey. They are Basic and Standard Insurance Policies. A Basic Policy offers minimal protection at a reduced cost. This policy does provide the required minimums to comply with New Jersey Law. Secondly, it is not for everyone. It should only be considered by individuals who have few assets to protect. This policy generally provides no Bodily Injury coverage nor provides you with a lawyer to defend you in a lawsuit that may be filed against you. You will be financially responsible for both.

A Standard Policy provides for Bodily Injury coverage and a lawyer to defend you in a lawsuit that may be filed against you. Thirdly. how much coverage should you purchase? This is the ultimate question. Whether you rent or own your own home is a consideration. Do you have assets that you need to protect? You need to determine the value of the assets that you seek to protect and weigh that against the cost to insure those assets. You should always consider as a minimum of $100,000 per person/ $300,000 per accident, if affordable. The second figure covers you in the event that more than one person is injured in the motor vehicle accident. Coverage can be purchased as high as $250,000 per person/$500,000 per accident.

If your assets are greater than the maximum allowable under a Standard Policy, you can purchase an Umbrella Policy. You should also factor in the value of those assets in the future. You should also consider the activity that you are performing that may increase the likelihood of a lawsuit against you. An Umbrella Policy, provides you with insurance coverage in excess of your Standard Policy limits. Your insurance company will request that you carry a certain amount of Bodily Injury coverage in order to obtain an Umbrella Policy. If you fail to comply, you could end up with a gap in insurance coverage. Umbrella coverage also provides excess coverage to your homeowner’s insurance coverage not just your automobile insurance coverage.

The chart below compares the differences between the Standard and Basic policies and explains the amounts of coverage you may be able to purchase from an insurer.

Sources:

http://www.state.nj.us/dobi/division_consumers/insurance/basicpolicy.shtml