I don’t know about you, but I am getting somewhat tired about talking and writing about the COVID-19 crisis. It’s unfortunately going to be with us for a while; however, there are other pressing issues we need to deal with, like the changes to Michigan’s no-fault insurance law that takes effect in the beginning of July. The new law affects everyone who drives a car and therefore, it’s important to understand the changes to our insurance coverage and the new options available to you. As always, it is important to make an informed decision, because there can be adverse consequences if you select the wrong option. Like everything else, there’s no one right option for everyone, rather the key is what’s best for your individual situation.
The main change to Michigan’s no-fault insurance law deals with the personal injury protection (PIP) portion of your auto insurance premium. PIP is the coverage that pays for your medical expenses if you’re injured in an auto accident. Currently, the state of Michigan has unlimited coverage, which means that all of your medical expenses, including the cost of a caregiver, would be covered if you were in an auto accident. Under the new law, there are six options that you can choose for your PIP coverage. You can choose to keep your unlimited PIP coverage or select one with $500,000 benefits, $250,000 benefits; for people on Medicaid a $50,000 PIP, a Medicare opt-out option, where if you have Medicare A&B you can opt out and pay zero PIP premiums, and qualifying health coverage exclusion for certain households.
Regardless of what option you choose, your PIP auto insurance premium will be discounted. Depending on the option you choose, your PIP premium will be reduced by a minimum of 10% or as high as 100% depending on your choice. For example, if you keep your unlimited PIP option, the premium on your PIP will drop by 10 percent; if you select the $250,000 option, your PIP premium will drop 35 percent; and if you select the Medicare option, your PIP premium will be zero.
Unfortunately, too many people will select the option with the lowest cost. That is not the way you should select your coverage. The lowest cost option may not be the option that is best for you. You should select the option that best fits your situation and that coordinates with your health insurance coverage. Therefore, you should talk with your auto insurance agent and your healthcare representative to help you make an informed decision.
There are ads floating around that suggest they can lower your auto premium upwards of 45 percent. This is not accurate. The reduction in premium that you hear only applies to the PIP portion of your policy. For example, if your PIP premium was $300 and your total auto premium was $1,500 and you sign up for the $500,000 PIP option, your PIP premium will reduce by 20 percent. The 20 percent is of the $300, and thus you would have a $60 savings. The discount is not 20 percent of your entire premium of $1,500. Therefore, don’t be fooled.
This is the time to determine whether your auto insurance agent is worthwhile or not. If your auto insurance agent can’t explain the changes and how it relates to you, it may mean you need a new agent. Remember, your agent is supposed to work for you and if they don’t, why are you paying them?
The new law affects all policies that take effect after July 1st. Therefore, you still have time to learn about the new law. Take the time and remember, what’s good for your next-door neighbor is not necessarily the best option for you.
Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org.