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                                                                    Exhibit 10.3
                            1ST CONSTITUTION BANCORP

                            DIRECTORS' INSURANCE PLAN
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                            1ST CONSTITUTION BANCORP
                            DIRECTORS' INSURANCE PLAN

Section 1. Establishment of the Plan

            Effective as of October 1, 2002, 1st Constitution Bancorp
("Bancorp") hereby establishes a plan to provide a death benefit to certain
members of the Boards of Directors of Bancorp and/or 1st Constitution Bank
("Bank"), who are not current employees of either Bancorp or Bank ("Directors").

Section 2. Definitions

            In addition to the definitions set forth in Section 1, when used in
the Plan, the following terms shall have the definitions set forth in this
Section 2:

            2.1 Beneficiary: The term "Beneficiary" means the beneficiary or
beneficiaries (including any contingent beneficiary or beneficiaries) designated
in writing by the Participant on a form determined by the Company (or, if none,
the Participant's Beneficiary shall be his or her estate) to receive the death
benefits payable pursuant to this Plan. A Participant may revoke a prior
designation of a Beneficiary and may also designate a new Beneficiary without
the consent of the previously designated Beneficiary, provided, however, that
such revocation and new designation (if any) must be in writing and filed with
the Board of Directors before the Participant's death.

            2.2 Board of Directors: The term "Board of Directors" means the
board of directors of the Company.

            2.3 Change of Control: A "Change of Control" will be deemed to have
occurred if -
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            (X) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a person engaging in a transaction of the type described
in clause (Z) below of this definition but which does not constitute a change in
control under such clause (Z), hereafter becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Bancorp representing more than 50% of the combined voting power of
Bancorp's then outstanding securities; or

            (Y) during any period of twenty-four (24) consecutive months during
the term of this Agreement, individuals who at the beginning of such period
constitute the Bancorp Board of Directors, and any new director (other than a
director designated by a person who has entered into an agreement with Bancorp
to effect a transaction described in clauses (X) or (Z) of this definition)
whose election by such Board of Directors, or nomination for election by
Bancorp's shareholders, was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or

            (Z) Bancorp completes a merger, consolidation or similar transaction
of Bancorp with or into any other corporation or entity, or a binding share
exchange involving Bancorp's securities, other than any such transaction which
would result in the voting securities of Bancorp outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 50% of the
combined voting power of the voting securities of Bancorp or such surviving
entity outstanding immediately

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after such transaction, or Bancorp completely liquidates, sells or otherwise
disposes of all or substantially all of its assets.

            2.4 Company: The term "Company" means 1st Constitution Bancorp
and/or 1st Constitution Bank.

            2.5 Effective Date: The term "Effective Date" shall mean October 1,
2002.

            2.6 Participant: The term "Participant" means an individual who is a
Director as of the Effective Date. Thereafter, a member of the Board of
Directors will become a Participant on the first day of the month following the
date on which he or she has been a member of the Board of Directors for a total
of ten years, but only if he or she is not then employed by the Company as an
employee.

            2.7 Plan: The term "Plan" means this 1st Constitution Bancorp
Directors' Insurance Plan, as set forth herein, and as it may be amended from
time to time.

Section 3. Death Benefit

            3.1 Coverage Amount. Each Participant will be provided with term
insurance coverage in the amount of one hundred thousand dollars ($100,000.00),
to be paid to the Participant's Beneficiary following the Participant's death.
Coverage will be in place from the date the individual becomes a Participant
until the date of his or her death, regardless of whether the Participant
continues to be a member of the Board of Directors.

Section 4. General Provisions

            4.1 Director's Rights Unsecured. The Plan is unfunded, but the
benefits to be paid hereunder will be paid pursuant to the terms of an insurance
policy or policies. The right of any Participant to receive payments under the
provisions of the Plan shall be an unsecured claim with respect to such policy
or policies. As a condition of participation in this Plan the Participant

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agrees to submit any reasonably required information (including health
information and/or a physical examination from time to time), as may be required
in connection with the insurance policy.

            4.2 Administration. Except as otherwise provided in the Plan, the
Plan shall be administered by the Board of Directors of Bancorp, which shall
have the authority to adopt rules and regulations for carrying out the Plan, and
which shall interpret, construe, and implement the provisions of the Plan. The
Board of Directors, however, shall have the right to delegate some or any of its
administrative functions under the Plan to another person or entity.

            4.3 Legal Opinions. The Board of Directors may consult with legal
counsel, who may be counsel for the Company, with respect to its obligations and
duties under the Plan, or with respect to any action, proceeding, or any
questions of law, and shall not be liable with respect to any good faith action
taken, or omitted, by it pursuant to the advice of such counsel.

            4.4 Liability. Any decision made or action taken by the Board of
Directors, or any employee of the Company or any of its subsidiaries, arising
out of or in connection with the construction, administration, interpretation or
effect of the Plan, shall be absolutely discretionary, and shall be conclusive
and binding on all parties. Neither the Board of Directors nor any employee of
the Company shall be liable for any amounts hereunder or any action hereunder,
whether of omission or commission, by any other member or employee or by any
agent to whom duties in connection with the administration of the Plan have been
delegated or, except in circumstances involving bad faith, for anything done or
omitted to be done.

            4.5 Tax Reporting. The Company shall have the right and obligation
to report to the appropriate taxing authorities as income to the Participant the
value (determined from time

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to time in accordance with the rules then in effect for such reporting) of the
death benefit coverage provided to such Participant.

            4.6 Policy Title and Ownership. Title and ownership of the policy or
policies shall reside in the Company for its use and for the use of the
Participant all in accordance with this Plan. The Company alone may, to the
extent of its interest, exercise the right to borrow or withdraw on the policy
cash values. Where the Company and the Participant (or assignee, with the
consent of the Participant) mutually agree to exercise the right to increase the
coverage under the subject policy, then, in such event, the rights, duties and
benefits of the parties to such increased coverage shall continue to be subject
to the terms of this Plan.

            4.7 Division of Death Proceeds. The division of the death proceeds
of the policy or policies is as follows: the Participant's Beneficiary or
Beneficiaries are entitled to the death benefit specifically set forth in
Section 3.1, and the Company shall be entitled to the remainder of such
proceeds.

Section 5. Amendment, Suspension, and Termination

            The Board of Directors of Bancorp shall have the right at any time,
and for any reason, to amend, suspend, or terminate the Plan, either in whole or
as to a particular Director, except that no change shall be made following a
Change of Control without the consent of an affected Participant, except as
provided in the next following sentence. Without limiting the foregoing
sentence, the Board of Directors of Bancorp may terminate the Plan or suspend
operation of the Plan if the Company is subjected to regulatory discipline
limiting its ability to pay compensation to Participants, or if the Company is
advised by a regulatory agency that payments to (or coverage for) a particular
Participant or continuation of the Plan will result in regulatory sanctions
against the Company, its officers or directors.

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Section 6. Applicable Law

            The Plan shall be governed by, and construed in accordance with, the
laws of the State of New Jersey, except to the extent that such laws are
preempted by federal law.

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