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New Jersey's state motto might be "Liberty and Prosperity" but that doesn't mean that residents are free to do anything that they desire. Just like all the states in the US, New Jersey has enacted state laws to improve public safety, prevent the destruction of property, and protect consumers.

Because of these laws, people cannot act freely when it comes to making the decision to buy or not to buy auto insurance. New Jersey has a mandatory auto insurance law. Under this law, anyone who owns a vehicle is required to maintain coverage without any lapses.

This might sound straightforward, but laws in NJ are anything but that. Between the mandatory limits and the state's recent cost reduction acts, keeping up with auto insurance can be difficult.

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Here's what you need to know about NJ auto insurance laws.

Why is auto insurance mandatory for New Jersey residents?

If you look at the surface level of auto insurance requirements, it's only natural to wonder why the state has the right to mandate whether or not you buy coverage for your own property. After all, the state doesn't tell you that you must carry life insurance or disability coverage to protect your income. The difference is that in a car you can damage others.

In 1945, when the McCarran-Ferguson Act was passed by Congress, the states earned the right of regulating insurance transactions conducted within the state lines. State legislatures also were given the responsibility of setting insurance laws that they felt secured consumer protection. As a result, NJ has laws that are unique to itself.

Who's required to buy insurance?

Under state law, you're required to buy a minimum amount of coverage if you own a private passenger vehicle, truck, or van that must be registered. As long as you have license plates and you drive your vehicle on public roads, you'll need insurance.

Additionally, the insurance must be in the registered owner's name or the owner will face penalties for being uninsured.

What type of insurance do you have to carry by law?

Standard mandatory insurance laws make insurance in New Jersey tricky. These laws say that registered vehicles need to have specific coverage at a minimum limit.

The minimum limits are referred to as a standard policy. In the past, you'd be penalized if you didn't carry at least a standard policy.

Standard coverage consists of:

  • Bodily injury liability – $15,000 per person, up to $30,000 per accident
  • Property damage liability – $5,000 per accident
  • Personal injury protection – $15,000 per person
  • Uninsured motorist protection – $15,000 per person, up to $30,000 per accident

What is a basic policy and why does it differ from required coverage limits?

In most states you're required under a mandatory insurance law to buy at least minimum coverage, but that's not the case in NJ. Since some residents in NJ were having difficulty paying the high cost for insurance, the Automobile Insurance Cost Reduction Act was passed and made basic coverage available to everyone.

Basic policies differ from standard policies in one way: They offer very limited coverage that still satisfies the law. If you have a limited budget, you're not breaking the law by electing to carry basic limits. However, you should avoid these limits unless you absolutely can't afford standard coverage.

Basic policies consist of:

  • The option to carry $10,000 for all persons in bodily injury liability
  • $5,000 in property damage liability
  • Personal injury protection of $15,000 per person
  • Comprehensive and collision coverage may be available from some insurers
  • Limited Right-to-Sue options that limit lawsuits

Is New Jersey a tort state or a no-fault state?

A tort state uses fault to determine whose insurance is responsible for settling claims. In a no-fault state, everyone makes a claim for their injury damages against their own policy.

New Jersey's structure is a bit unique because it is not a tort state nor is it a true no-fault state. Instead of operating under a pure no-fault system, New Jersey has what's called an add-on plan.

In add-on states, injured parties collect from their own insurance, but they also have the right to sue the at-fault party for non-economic damages like pain and suffering. That's why bodily injury liability is required in a seemingly no-fault state.

What is personal injury protection?

If you're moving to New Jersey from one of the many states that operate under fault-based settlement systems, you might not have the slightest clue what personal injury protection (PIP) is. PIP is a no-fault coverage that's designed to pay for your reasonable medical expenses. It also reimburses you for lost wages or other related expenses.

What does uninsured motorist protection pay for?

If you live in a no-fault state, it's odd to hear that you still need to carry uninsured motorist (UM) protection. However, this requirement results from the add-on structure of the system.

Since you still have the right to sue with a basic policy, carrying UM protection helps you collect for damages that weren't covered by PIP. UM protection pays for your medical bills and other economic damages when you're injured in an accident with an at-fault driver who didn't have insurance.

It also covers household members as pedestrians and the occupants of your car. If you carry state minimum PIP limits, this coverage can help significantly.

Are uninsured motorists a problem in NJ?

You'd think that with the liberal option to buy a basic policy that uninsured drivers wouldn't be a serious problem in New Jersey. Even though the option has lowered rates, about 10.3 percent of drivers in NJ don't have the required coverage. That can put you at risk.

To put things into perspective, there are about 3.9 million registered vehicles in the Garden State. When you do the math, that means that around 401,000 cars are driven in-state without insurance. In light of this, you might want to consider raising your UM limits.

What's the fine for driving uninsured?

All of those uninsured drivers who violate the law are at risk for paying serious fines. If you're caught without insurance, you may be fined between $300 and $1,000 for the first offense, but that's not the only penalty.

If caught when uninsured, you also face:

  • License suspension for up to one year on the first offense
  • Community service of up to 30 days on the first offense
  • A fine of up to $5,000 on the second offense
  • Imprisonment for 14 days on the second offense
  • License suspension for two years on the second offense

Do you need to purchase physical damage coverage?

Coverage for your medical bills might be required, but you're not required to buy protection for your car. You have the option for full coverage with most companies if your car doesn't have a salvage title, but you can't be fined if you don't elect to pay for it.

You do, however, need full coverage on a car that's financed or leased.

Does full coverage make sense when your vehicle is paid off?

Older vehicles are worth very little in the market. When your car holds no value, buying comprehensive and collision insurance doesn't make sense. If, however, the car is worth over $3,000, you might consider coverage to replace the car if the premiums are low.

Compare the cost of the coverage to the value of the car and determine if full coverage is beneficial to your situation.

Comprehensive-Only Policies are Another Option

If full coverage is too expensive, you can still consider a comprehensive-only plan. Comprehensive-only plans pay for claims to repair or replace your vehicle when it is stolen, vandalized, or damaged by fire.

Because the premium for comprehensive-only plans is fairly low and the rate of vehicle thefts is high in NJ, it makes sense to add the extra protection.

Don't Overlook Auto Insurance Discounts

New Jersey has the highest auto insurance premiums in the nation with average expenditures of $1,254.10 per year. Even though rates can be high, there are ways to save money. Be sure to look for discounts to keep premiums down.

Here are some of the auto insurance discounts that you may qualify for:

  • Defensive driver training
  • Mature driver training
  • Prior insurance
  • Good credit
  • Good Student
  • Vehicle safety features
  • Multi-car
  • Multi-policy

Perhaps the best way to save money on New Jersey auto insurance is to shop around. By shopping the market, you can see which carriers are priced in your budget. The best way to comparison shop is to use an online quote tool that connects you with dozens of carriers.

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