Auto insurance covers a range of things, from your vehicle to lawsuits against you. The next time you wonder why your auto insurance premiums are so high, consider the following:
Bodily Injury/Property Damage Coverage
Bodily Injury/Property Damage (BI/PD), commonly referred to as PL/PD (Personal Liability/Property Damage) is required in the State of Michigan for all registered, road-worthy vehicles. The limits you have for BI/PD mean so much more than just how much you pay for your insurance. There are two parts to BI/PD coverage.
The first part, Bodily Injury, covers your liability should you or an insured in your household hurt someone in an auto accident. There are two separate BI limits. The first is a PER PERSON limit. This limit covers your liability PER PERSON in an accident. The second is a PER OCCURRENCE limit. This limit covers your liability PER ACCIDENT.
These limits are important if you are ever in an accident and hurt another person. If you cause damage to another person in an accident, they will most likely sue you for the damages. In most cases, the judgment will fall in their favor, and you will be responsible for the damages to the other person. Your insurance will pay, up to your limits, the damages you owe due to your auto accident. If you do not have enough insurance to cover the full amount of the judgment against you, you are still responsible for the full amount owed to the plaintiff. In this case, your wages can be garnished up to 25% every paycheck until you reach age 65.
The average insured carries $100,000/$300,000 coverage on their BI/PD limits. This means that their insurance will pay up to $100,000 per person, and $300,000 per accident if they are sued for damages resulting from an auto accident. Although this coverage is better than the state minimums, which are $20,000/$40,000, these limits will still not fully cover the average auto accident claim in the United States, which is $400,000. This is where a professional insurance advisor should discuss the importance of having increased liability limits on your auto insurance. The difference in premium between $100,000/$300,000 is cents on the dollar. Some people even get this extra $400,000 in coverage PER PERSON for only $6.00 per insurance term!
Make sure you carry ENOUGH liability insurance to cover the average auto liability claim. Without proper coverage, the courts can come after your wages, your home, your cars, your savings and checking accounts…basically anything you own to settle the claim. Don’t settle for driving with less coverage than you need!
The second part, Property Damage, covers the damage you cause to others’ property. This can include their vehicles, homes, trailers, boats, toys, etc. This coverage corresponds with the Bodily Injury limits. It is important for you to be fully covered for your liability to others’ property, because this type of damage can cause lawsuits, as well.
Although this coverage is offered in lesser amounts, typically starting at $20,000 per vehicle, you should always have high limits. There is no reason you should have to worry about this type of liability if you are fully covered with high limits.
When an insurance agent refers to full coverage on a vehicle, they are talking about BI/PD, comprehensive coverage, and collision coverage.
Comprehensive coverage is specifically for fixing your vehicle if something should happen to it…something other than collision with another vehicle. Comprehensive covers an accident with a deer, glass breakage due to loose stone on the highway, a tree falling on your car, a fire in your garage that caused damage to your car, etc. Comprehensive coverage is available even if you don’t have BI/PD coverage on that specific vehicle. If you put a vehicle in “storage”, you are technically putting ONLY comprehensive coverage on the vehicle to cover any damage to it while it is in storage. Comprehensive coverage prices are affected by the deductible you choose. Your deductible is the amount you pay before you would submit a claim to your insurance. Typically, comprehensive deductibles are $100, $250, or $500, depending on your needs and how much you can afford to pay for a “comprehensive” type of claim.
Collision coverage is for any damage caused to your car because of an accident, or collision, with another vehicle. Collision is what will pay you for your vehicle if it is totaled due to an auto crash, or you hit someone because the roads are icy and need your front bumper replaced. Collision coverage, because it is typically not used as much, comes with higher deductibles. Of course, you can choose your deductibles, usually between $100 and $1000, but these vary depending upon your situation.
Sometimes people have the impression that if they don’t have “full coverage,” they aren’t “fully covered” for their insurance needs. As long as you have appropriate liability limits, as discussed above, you are fully covered for your auto insurance. The “full coverage” portion is only for your auto…not your liability. Be sure you know that you don’t always need “full coverage” (comprehensive and collision) coverage in order for your liability to be covered.
BI/PD vs. Full Coverage
This brings us to the BI/PD versus full coverage question: “When should I have “full coverage” versus just BI/PD?”. The answer is not always black and white, but EVERY auto MUST have BI/PD coverage, so that is not an option. Many people with older standard vehicles, cars that the kids drive with 200,000 + miles on them, or rusty trucks used once in a while for hauling hay do not have full coverage on their autos. Some of these people may have comprehensive on them, so in case they break a windshield, it’s covered.
Typically, if you have a car that is paid off, not in the greatest shape, has lots of miles on it, and isn’t your pride and joy, you don’t need full coverage. Chances are, if you total the vehicle, your insurance isn’t going to pay a ton of money for it, so you are probably paying for a coverage that you don’t need if you have collision on it. Again, comprehensive is available without collision coverage, and that is something you would have to consider…do you have the money to replace a windshield or windows if they are broken? If not, think about comprehensive coverage. If you do, or would get a new vehicle if you had issues like these, then you probably don’t need to pay for the extra.
Michigan No-Fault Insurance
This is important because Michigan is a no-fault state. In Michigan, your auto insurance has built-in coverage for you if you get hurt in an accident. Although you may later sue the other driver for damages, you still need to be taken care of. This is where PIP comes into play.
Personal Injury Protection (PIP)
This part of your no-fault policy pays all necessary medical costs if you are hurt in an auto accident. It also pays, up to a maximum amount, wages you would have earned if you had not been hurt, for up to three years. This amount is adjusted each year on October 1st, and you may wish to contact our agency to determine the current maximum monthly amount or check our website for the current maximum. If you are killed in an accident, your policy will pay your family up to the monthly amount for three years, based on your earnings and fringe benefits. You may also be entitled to up to $20 per day in replacement services. This is to pay for services you are no longer able to provide for yourself or your family because you are injured, such as housekeeping and yard work. You may coordinate PIP coverage with other health or disability coverage you have to reduce your PIP premium. Medicaid, Medicare, and some self-funded health plans, however, do not allow coordination with PIP coverage. If you do coordinate your health coverage, and you are injured in an auto accident, your no-fault policy will pay your medical expenses or lost wages after you have used all the benefits under your health or disability plan. When you coordinate, these auto insurance coverage may be called excess medical/wage loss. Check with your health insurer to verify they will cover benefits related to a car accident before you agree to coordinate.
Property Protection Insurance (PPI)
This no-fault coverage pays up to $1 million for damage your car does in Michigan to other people’s property, such as buildings and fences. It will also pay for damage your car does to another vehicle but ONLY IF THE VEHICLE WAS PROPERLY PARKED. Other vehicle damage is covered only if the vehicle has collision and/or comprehensive coverage.
Residual Bodily Injury and Property Damage Liability Insurance (BI/PD)
This coverage pays your defense costs and any damages you are found liable for as the result of an auto accident, up to the limits of the policy. Although the no-fault law protects insured persons from being sued in most situations, there are certain exceptions. In general, these are the circumstances under which you could be sued: 1) If you cause an accident in Michigan in which someone is killed or seriously injured. 2) If you are involved in an accident in a state other than Michigan. 3) For damages to another person’s car which are not covered by insurance, if you are 50% or more at-fault in the accident. 4) If you are involved in an accident in Michigan with a non-resident who is an occupant of a motor vehicle not registered in Michigan. This part of the law is known as “mini-tort.” To be covered, you must purchase additional coverage called limited property damage liability insurance. Your agent can help you determine the amount of coverage you should purchase.
A basic no-fault policy pays up to certain amounts for which you are found to be legally responsible. Up to $20,000 for a person who is hurt or killed in an accident. Up to $40,000 for each accident if several people are hurt or killed. Up to $10,000 for property damage in another state. This coverage is often described as 20/40/10. These are the minimum amounts of coverage you must have. Sometimes courts award more than these amounts. If this happens, you would be responsible for paying the amount not covered by your policy. To protect themselves, people often buy extra liability insurance.
Basic No-Fault Does Not Pay For:
1) Repairs to your vehicle after an accident, no matter whose fault it was.
2) Repairs to another person’s vehicle after an accident, no matter whose fault it was, unless the vehicle was properly parked.
3) Costs for replacement of your vehicle if it is stolen.
Source: Michigan Department, LARA, Office of Financial and Insurance Regulation. “A Consumer’s Guide to No-Fault Automobile Insurance in Michigan.” September 2012.
Other “Convenience Coverages”
Insurance companies usually offer other coverages that provide drivers “conveniences” if something happens. Most of the time, these include: towing and roadside assistance and rental reimbursement. Each company has different convenience coverages, but these are extras that typically make the drivers feel more at ease when they’re on the road.
Towing and Roadside Assistance coverage generally covers a certain amount of the cost to have a towing service come to the rescue, or offers a certain amount of miles that they will cover to deliver you and your vehicle to a garage that can help fix your car.
Rental Reimbursement coverage gives you so much money per day – you set this amount with your agent – to help you rent a car if your car has to be in the repair shop. This is also nice because when you are already dealing with the bills at the repair shop, you don’t want to have to worry about how you are going to pay for the rental car, as well.
Accidental Death Benefits
An accidental death benefit in your auto insurance is, essentially, built-in life insurance. With values typically ranging from $5,000 to $25,000, this life insurance does not require a medical exam, but ONLY pays if you die in a car accident, hence the “accidental death” part. This is a nice added benefit to your auto insurance, but make sure you check the cost of having this. Sometimes, you can get a much bigger term policy that pays even if you don’t die in a car accident. These term policies give you more coverage (most start at $100,000 and go up), and they pay without the “accident” part of a death. (Excluding suicide.) And, many term policies are very affordable with coverage starting under $20 per month. So if you can afford to add the accidental death benefit to your auto insurance, that’s great! If you are looking for more coverage with less restrictions, ask your agent about a term policy, which offer great coverage at affordable rates.