Contributed by: Kali Hassinger, CFP®, CDFA®
As of July 2020, legislation has gone into effect that changed Michigan’s no-fault auto insurance law. Residents now have the option to elect their preferred level of Personal Injury Protection (PIP). Personal Injury Protection is the piece of your insurance that pays for expenses if you’re injured in an auto accident, such as medical costs and lost wages. Michigan’s law was unique to other no-fault states because residents were required to maintain insurance that provides unlimited medical benefits and covers the lifetime of the injured person. This became cost prohibitive over time, and an average of 20% of Michigan drivers are uninsured.
The new legislation now provides 6 different choices when electing your PIP medical coverage. Under the new limits, the amount shown below is what the insurance company will pay per person per accident. A slight premium reduction can also be expected with each choice, because in conjunction with these options, each auto insurance company is required to reduce PIP medical premiums for the next eight years. This may sound promising, but the Personal Injury Protection portion of your insurance only accounts for a small percentage of your overall premium.
Unlimited Coverage – Although this is the same coverage as required in the past, drivers can expect an average PIP premium reduction of about 10%
Up to $500,000 in PIP coverage – Drivers can expect a 20% reduction in PIP premium costs
Up to $250,00 in PIP coverage - Drivers can expect a 35% reduction in PIP premium costs
Up to $250,000 in coverage with PIP medical exclusions – This option is available for those with non-Medicare health insurance that covers auto injuries
Up to $50,000 in PIP coverage – Drivers can expect a 45% reduction in the PIP portion of their overall premium, but this is only available to individuals covered by Medicaid. Family or household members are required to maintain other auto or health insurance that will cover auto accident injuries.
PIP Medical Opt-Out – This is only available to those enrolled in Medicare (Parts A and B). Family or household members are required to maintain other auto or health insurance that will cover auto accident injuries. Although this option may seem tempting for those covered by Medicare, remember that long term care costs are not covered, regardless of whether or not they are due to sustained injuries from an auto accident.
Liability is another piece to consider when making your election. Those who select anything but unlimited PIP coverage may need to consider additional liability coverage. The default minimum bodily injury coverage is $250,000 per person and $500,000 per incident, but there is an option to elect lesser amounts.
Although it can be easy to focus on the premium reduction when electing your PIP coverage, being sure that you’re appropriately covered is always most important. If you fail to make a specific election, unlimited PIP protection will be selected as a default. This may not be a bad thing, as medical costs continue to rise and most do not understand exactly what their healthcare insurance would cover in the event of an auto accident. In most cases, auto insurance is actually more comprehensive in terms of healthcare coverage when accidents occur. Each person’s situation is unique, but in terms of liability and healthcare coverage, protecting yourself and your family is of utmost importance.
Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.