Michigan Auto Insurance Reform
We generally like to put out information that is helpful to all of our clients. In this case, Michigan auto insurance reform only applies to our Michigan clients. As a result, we are emailing this information to those clients that will be directly affected (i.e. current Michigan residents). However, we have also opted to include this information as a blog, for anyone who may be getting questions from friends of relatives in Michigan.
Mandatory Unlimited Medical Coverage Going Away
Starting July 2, Michigan drivers will no longer be legally required to carry unlimited medical coverage on their car insurance. This legislation represents the biggest set of changes to Michigan auto insurance since Michigan no-fault insurance was first enacted in 1973. Governor Gretchen Whitmer signed the bipartisan no-fault auto insurance reform bill in order to provide lower rates for Michigan drivers. Michigan currently has the fourth highest cost of auto insurance in the country, which has caused as many as one in five drivers within the state to operate without coverage.
What Personal Injury Protection Covers
Michigan PIP, which stands for “Personal Injury Protection” has up until now provided unlimited lifetime medical coverage to those who are injured in an auto accident in addition to 3 years of lost wages and lifetime in-home attendant care. For those who have ended up needing coverage, it has meant the difference between receiving access to unlimited lifetime care and financial destruction.
As one can imagine, the cost of providing this coverage to every Michigan driver, passenger, and auto accident victim has become material. Not only has it covered unlimited medical expenses for the insured as a driver or passenger in a car, but also in the event that they were injured as a pedestrian. The State has also covered unlimited PIP for those who are injured in an accident while uninsured through the Michigan Department of State Assigned Claims Facility. This facility has been funded through a per-vehicle annual insurance charge.
How Personal Injury Protection is Changing
Let’s use an example of an injured pedestrian to look at how PIP is changing. Under the outgoing law for PIP, that pedestrian first looks to their own no-fault auto policy. If they don’t have their own coverage, then they look to the policy of a spouse or a resident relative, then to any policy on the car that hit them, followed by any policy of the driver of the car that hit them. If there was no coverage at all in place, they would have had unlimited PIP through the Department of State Assigned Claims Facility. In all cases, that individual would have unlimited PIP coverage, no matter what. Going forward, that pedestrian will be limited to the level of PIP that has been chosen for their policy (or the applicable policy of spouse or resident relative). In the event that there are no policies in place, that pedestrian will now be limited to $250,000 of coverage through the Michigan Department of State Assigned Claims Facility.
The new law has expanded personal injury protection from a mandatory unlimited level to an array of options. Those who wish to keep unlimited coverage on their auto policies can, while new options allow for a reduction in PIP coverage down to $500,000, $250,000, $50,000 for Medicaid recipients, or an ability for some to opt-out of PIP coverage altogether.
Risks of Lower Premiums
Many drivers will consider lowering their level of coverage in order to reduce their cost of insurance. Some health insurance companies have expanded their coverage of auto-related injury coverage as a result, but not to a degree that fully replicates unlimited lifetime PIP on an auto policy. As an example, some healthcare policies will cover 100 days of skilled nursing for an auto accident vs. the years of care that may be needed for a spinal cord or closed-head injury.
Michigan drivers are having to review their liability coverage as well. This is due to the fact that drivers will likely be more susceptible to being sued for unpaid medical bills on top of pain and suffering. Under the old law, individuals were rarely sued for unpaid medical bills because 100% of PIP was covered through every auto policy. Auto policies will continue to have an amount of coverage for liability (i.e. $250,000 per person and $500,000 per accident). However, some insurance professionals are suggesting that due to a higher probability of being sued after the recent changes, increasing liability coverage or adding an inexpensive personal umbrella policy (if one doesn’t have coverage already) may make sense.
Talk to Your Insurance Agent
The changes in policy coverage will be phased in, taking place on the first renewal date that falls after July 2, 2020. However, drivers can select and implement changes prior to their scheduled renewal. If no action is taken, policies will continue to maintain unlimited PIP coverage.
In my own personal case, I opted to keep unlimited PIP coverage and significantly increase my personal umbrella policy. I was able to do so for roughly $75 less per year when compared to my prior coverage.
Because each situation is different, it will be useful to speak with your insurance agent in order to determine the most appropriate way to address both PIP and liability coverage going forward.
In the meantime, we are more than happy to take your general planning questions that may have to do with this topic.
All comments and suggestions are welcome.
Christopher W. Frayne, CFA, CFP®