As an insurance agency owner and insurance consultant in Michigan, Peter Vitale receives a lot of questions about different types of auto insurance and their limits. Michigan state law requires all drivers to carry liability insurance, but they also have several voluntary coverage options available to them. Whether someone is a newly licensed driver or has been on the road for a while, periodically reviewing insurance terms and coverage limits is the best way to make sure they are neither underinsured nor over-insured.
What is Liability Insurance Coverage?
Michigan joins the 49 other states and the District of Columbia in requiring liability coverage for all drivers. The state breaks liability coverage into two categories, bodily injury and property damage. The bodily injury portion of liability coverage pays for medical expenses, lost wages, and potentially pain and suffering associated with the accident. The property damage portion of liability insurance pays for damage to property such as vehicles, contents within a vehicle, and real estate damage.
When insurance agents write a new policy, the liability coverage portion includes three whole numbers. The numbers 25/50/25 represent the minimum level of coverage required by law, but insurance clients can request greater coverage if they pay a higher premium. In this example, the first number 25 refers to $25,000 worth of coverage per person for bodily injury sustained in a car accident. The middle number represents a $50,000 bodily injury cap for all people involved in the accident while the last number represents a $25,000 maximum payout on property damage.
The way that insurance companies pay out under a liability policy depends on the specific scenario of each accident. An example scenario is an accident that involves two people with one person having $20,000 in medical expenses and the other having $10,000 in medical costs. Both amounts fall below the per-person limit of $25,000 and the total accident limit of $50,000. The insurance company would pay a total of $30,000.
In a different scenario, three people sustained injuries in a car accident. One person has $30,000 worth of medical expenses and the other two people have $20,000 worth of medical expenses each. Although the total claim is $70,000, the insurance company would pay a maximum of $50,000 according to the policy limits. Payment for the first injured person would be $25,000 while the other two people would split a $25,000 payment. This example highlights why some people choose higher limits for their liability coverage.
Uninsured and Underinsured Motorist Coverage
Unfortunately, not every driver is responsible. Some have lost their driver’s license and continue to drive without insurance because they cannot find an agency to cover them. Others have never had a driving violation but also never bought auto insurance.
In either case, thousands of drivers on Michigan roads either have no insurance or not enough insurance to pay for significant damages in an accident. According to the Insurance Information Institute, almost 13 percent of drivers in the United States have no insurance as of 2019. That number nearly doubles to 25.5 percent for Michigan drivers. The Wolverine State comes in second behind only Mississippi for the largest number of uninsured drivers in the country.
Considering that more than one in four Michigan drivers has no insurance, adding voluntary uninsured or underinsured motorist coverage can provide responsible drivers with valuable peace of mind. This coverage will pay medical expenses, lost wages, and property damage for the driver of the vehicle involved in an accident with an uninsured or underinsured motorist. Insurance agents write this portion of a policy by first listing the per-person coverage rate and then the cap on total damages for all people involved in the accident.
Michigan's drivers also have the option to add uninsured or underinsured property damage coverage to their policy. This portion of the policy pays expenses when the at-fault driver has no insurance or inadequate coverage. Drivers who already have collision coverage do not need to add this rider to their policy since the collision coverage already pays for it. Common limits for uninsured or underinsured property damage coverage typically ranges from $10,000 to $25,000.
What is Collision and Comprehensive Coverage?
Drivers can purchase these optional auto insurance policies together or separate, which also go by the collective name of physical damage. Collision auto insurance covers the cost of repairs for the insured driver after an accident. Other times that collision insurance would kick in include after striking a tree or telephone pole, backing into another car, or damage caused by driving over a pothole.
Drivers should be aware that the insurance company will not pay for repairs that exceed the vehicle’s current value and will declare it a total loss. When that happens, the insured receives a check that he or she can put towards another vehicle or choose to repair the current vehicle and pay the overage costs out of pocket.
Comprehensive auto insurance pays for damages to the insured person’s vehicle not caused by an accident. Common examples include a tree falling on the car, vandalism, theft, or striking an animal such as a deer. If the damage occurred due to an act of nature, most insurance companies pay for repairs caused by tornadoes, hurricanes, floods, and heavy winds.
Personal Injury Protection (PIP) Now Required in Michigan
When Michigan became a no-fault auto insurance state in 2019, the state legislature drafted a new law that required drivers to carry PIP. This coverage pays for injuries to the driver named in the insurance policy. PIP typically pays for medical expenses and lost wages, but it can also cover things like childcare expenses depending on how the agent writes the policy. PIP coverage pays damages to the driver and any passengers regardless of who caused the accident.
How People Can Determine the Right Amount of Liability Coverage
When an insurance company pays the maximum amount allowed under a consumer’s policy, other people involved in the accident have the right to file a personal injury lawsuit. The more serious the injuries, the more likely it is the hospital bills will exceed what an insurance company will pay under liability coverage.
Someone who caused an accident could end up losing their home, life savings, or other valuable assets to pay a personal injury lawsuit settlement. Michigan-based insurance professional Peter Vitale agrees with the widely accepted advice in the insurance industry that people should select liability coverage limits as equal to their net worth as possible. Net worth is a combination of cash in all accounts and the value of assets minus any debts. People who have a low net worth and expect it to stay that way may be fine with the minimum liability coverage limits.
How Coverage Limits Impact Insurance Rates
Auto insurance consumers with only the basic coverage required by law will pay the lowest premiums. However, Peter Vitale urges all drivers to consider what would happen to their assets in the event of an at-fault accident. They should consider whether they could afford to pay out a lawsuit or if it would be better to raise the limits on their liability insurance.
People also need to keep in mind that a deductible applies to most insurance coverage before the company pays out on the claim. While lower coverage limits result in lower premiums, the opposite is true with deductibles where higher amounts result in lower premiums.
Life situations can change quickly, and so can the need to update auto insurance. As an experienced insurance advisor, Peter Vitale recommends that everyone review their policy at least every six to 12 months. Common examples of potential changes include adding or removing a teen driver, increasing or decreasing income, or qualifying for discounts with the auto insurance company.
About Peter Vitale
Born and raised in Michigan, Peter Vitale has built his career in the insurance industry in his home state. He landed his first position with Allstate Insurance in 2012 and became owner of the agency by 2014. Peter Vitale launched Bloomfield Insurance at that time. His success with advising clients over the years led to his decision to become an insurance consultant. In this role, Vitale works with struggling insurance agencies to help them become profitable again.
Peter Vitale has a proven approach when it comes to helping stagnant insurance companies with declining sales. He begins the process by claiming an equity stake in the business. Vitale then overhauls the agency’s marketing by himself and re-trains the staff to obtain more leads and work more efficiently. Outside of work, Peter Vitale is on the Board of Directors for the Better Business Bureau of Eastern Michigan and gives back to his community as often as possible.