UPDATED JULY 19, 2018
Car insurance policies and the laws that govern them are often very important in personal injury cases involving car accidents. Because of this, we have become very familiar with the auto insurance laws and the different types of coverage. And what we have seen the auto insurance industry doing is sometimes shocking.
The Hook – Switching to “Our” Insurance Saves Money
We frequently see on TV and radio ads these claims by many of the car insurance companies that switching to their company saves you money. Sometimes they publish statistics, claiming that the average person saves a certain percent or a certain dollar amount. But how can this be? How can almost every car insurance company save you money? And if, for example, an insurance company is charging 15% less than everyone else, how could they possibly stay in business?
How Car Insurance Works and How The Carriers Make Their Money
Car insurance is very much like a lot of businesses. They sell a product to customers, the customer pays a certain amount above the insurance carrier’s own costs for producing that product, and the carrier pockets the difference as their profit. The product that they offer is essentially a system to spread around risk. The customers all pay a premium to the insurance companies, and the companies pay claims to a small percentage of the customers who have a valid claim (and the payout is typically much larger than the cost of that particular customer’s premium). They offer a variety of different types of coverage, but on average, according to the data provided by the Insurance Information Institute, the insurance companies get about a 5% profit margin on selling auto insurance.
So if everyone is making about 5%, then it’s just not possible that all the companies are constantly saving everyone money. This is especially true when you consider that almost half of the US car insurance market is controlled by State Farm, Allstate, GEICO, and Progressive.
So how do they save people money? One way is for the companies to adjust prices cyclically. If you look at your car insurance costs, you may notice that your premiums have gone slightly up at one point, and then they go slightly down a few years later. This allows, for example, GEICO to be the company saving everyone money for a few years, and then Progressive is cheaper once GEICO has to make a profit again, and then State Farm may be cheaper once Progressive needs to make a profit. But the other way that they “save you money” is simply by offering “discounts” and “options” that, in our opinion, are complete ripoffs.
How Car Insurance Companies Rip Off Their Customers
In New Jersey, there is a whole menu of options that the car insurance companies are allowed to offer their customers. The explanations of these different options may be buried in the fine print, or not explained at all. So if you are shopping for car insurance, make sure that you are comparing policies that offer identical coverage. Frequently, car insurance companies will save new customers money by offering “options” or “discounts” which end up saving the insurance company a lot of money, but only saving the customer relatively little money (but hopefully enough to get the customer to switch to their company). Below are some of the “options” that an insurance company may offer you, which could simply be a huge ripoff.
Reduced PIP coverage: PIP or no-fault insurance is offered in almost all car insurance policies and it is used to pay your medical bills, regardless of who is at fault for an accident. Year ago, every policy included exactly $250,000 in medical expense benefits under PIP. Now, insurance companies must offer “options” of PIP in smaller amounts – $15,000, $50,000, $75,000, and $150,000. And a Basic Policy would offer no PIP at all, except for emergency treatment and brain/spinal cord injuries. Every customer’s insurance quote will be different, but the savings that most customers receive from electing an “option” of the lower PIP amount is really a big ripoff. We have seen some cases where the difference in cost between a $15,000 PIP policy and a $250,000 PIP policy is as low as one dollar per month. For higher risk customers it will be higher, but regardless, it’s simply not worth it. If you are injured in an accident, a $15,000 PIP policy will be depleted very quickly. Many people assume that if they are hurt in a car accident the other driver’s car insurance will pay for the medical bills – this is not true! Your own car insurance is the one who pays for your own medical bills. And if you deplete your own PIP policy, you could only get the other driver’s insurance company to pay the bills if the other driver is at fault, and even then you would typically need to sue them and wait years to collect.
High PIP Deductibles: A deductible is the amount that you would first pay out of your own pocket before the insurance company will pay a penny. Electing for a higher deductible will lower your insurance cost. Sometimes it is worth it, like raising the deductible for collision coverage (the part of the insurance that pays to fix your car). But for PIP, it is usually a ripoff. It used to be standard that all PIP policies included only a $250 deductible. Now, insurance companies are “saving you money” by offering up to a $2,500 deductible. Yes, this will reduce the cost, but in exchange you would pay a very large amount out of pocket for your medical treatment, if you are hurt in an accident. And that first $2,500 will be spent relatively quickly, especially if you require ER or hospital treatment. Also, you should remember that even if the other driver was 100% at fault for the crash, you can never sue to get reimbursed for your PIP deductibles.
Health Insurance for PIP Option – sometimes the biggest ripoff of all: Another option that could “save money” is to select “health insurance primary” as an option. This means that your health insurance company will pay for your medical treatments instead of your car insurance company. This may be a good choice for people with good health insurance and it will definitely lower the cost of the insurance. But what some less scrupulous insurance agents have done is sell this option to people who do not even have health insurance! The customer may not even know that they are choosing this “discount option.” If such a person gets injured and they try to use their PIP coverage, they will get hit with a “penalty” and a huge deductible. This could easily cost the person thousands of dollars.
Reduced UM/UIM coverage: UM and UIM is the portion of the policy that pays you and the people in your car (like your loved ones) for pain and suffering in the event that they suffer injuries, and the person who is at fault for the accident is uninsured, flees the scene, or doesn’t have enough insurance to cover the loss. Most people do not know what this insurance really is, or overlook it when purchasing insurance. What some car insurance companies may do is, for example, give you a quote that offers $100,000 in liability insurance, but only $15,000 (the minimum) of UM/UIM coverage. It saves the insurance company lots of money if you purchase the reduced UM/UIM package, but it may only save you a few dollars.
Remember, the insurance companies have teams of skilled attorneys who are aggressively representing their interests, and you should too. If you have any question or you or a loved one have been hurt in an accident, please do not hesitate to contact us for a 100% free consultation.
Raff & Raff, LLP
Attorneys at Law
30 Church Street
Paterson, NJ 07505
Tel: (973) 742-1917
Fax: (973) 742-2454
Based in Paterson, New Jersey, Raff & Raff, LLP services clients in the communities of Bloomingdale, Clifton, Haledon, Hawthorne, Little Falls, Passaic, Paterson, Pompton Lakes, Prospect Park, Ringwood, Totowa, Wanaque, Wayne, West Milford, Woodland Park, Allendale, Alpine, Bergenfield, Bogota, Carlstadt, Cliffside Park, Closter, Cresskill, Demarest, Dumont, East Rutherford, Edgewater, Elmwood Park, Emerson, Englewood, Fair Lawn, Fort Lee, Franklin Lakes, Garfield, Glenn Rock, Hackensack, Hasbrouck Heights, Haworth, Hillsdale, Ho-Ho-Kus, Leonia, Little Ferry, Lodi, Lyndhurst, Mahwah, Maywood, Midland Park, Montvale, Moonachie, New Milford, North Arlington, Northvale, Norwood, Oakland, Old Tappan, Oradell, Palisades Park, Paramus, Park Ridge, Ramsey, Ridgefield, Ridgewood, River Edge, River Vale, Rochelle Park, Rockleigh, Rutherford, Saddle Brook, Saddle River, Teaneck, Tenafly, Teterboro, Waldwick, Wallington, Westwood, Wood-Ridge, Woodcliff Lake, Wyckoff, Belleville, Bloomfield, Caldwell, Cedar Grove, Orange, Essex Fells, Fairfield, Glen Ridge, Irvington, Livingston, Maplewood, Millburn, Montclair, Newark, North Caldwell, Nutley, Roseland, Verona, Bayonne, Jersey City, Hoboken, Union City, West New York, Guttenberg, Secaucus, Kearney, Harrison, North Bergen, Weehawken, Elizabeth, Linden, Plainsfield, Rahway, Union, Scotch Plains, Clark, Cranford, Hillside, Westfield, Roselle, and surrounding areas.