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The Truth About Michigan No-Fault Insurance

I have been a lawyer in Michigan since 1984 and have interviewed hundreds, if not thousands of people that have been forced to deal with the aftermath of a motor vehicle accident.

Even though it is against the law to drive without auto insurance in the State of Michigan, I have never met a single person that fully understood their own no fault policy. This is true even though auto insurance is a significant portion of many family budgets. This blog post is intended to address some vital elements of Michigan's auto insurance system.

The Basic Premise

Michigan is the only state in the Union that has a pure no fault system. With ony a few exceptions, if you are injured in a motor vehicle accident in the state of Michigan, all of your medical and rehabilitation expenses are paid for by your own insurance carrier. A person injured in a motor vehicle accident is also entitled to receive three years of lost wages, up to approximately $66,000 per year. These benefits are available regardless of who is at fault in the accident.

Every Michigan auto policy provides for full medical and three years of wages. You can elect to have your own health and disability insurance carriers pay first, but no auto accident victim entitled to no fault should ever have to pay for their own medical expenses that result from a motor vehicle accident.

You should count your lucky stars: in every other state, many motor vehicle accident victims are forced into bankruptcy when overwhelmed with medical bills and the inability to work.

Liability Coverage

Every Michigan auto policy offers liability coverage. This is the amount of money that your insurance company will pay on your behalf to resolve a claim made against you for your negligence in operating your car. If you have young drivers operating your car, you will be also be responsible for the damages they cause to others, if the car is registered to you. For this reason, I recommend that if you are going to buy a car for your new drivers, register the vehicle to the driver only. If you are on the registration, you can be sued for the negligence of your son or daughter.

Note: you should purchase enough liability coverage to protect all your assets, and that includes passengers. If you make a mistake behind the wheel, and seriously injure your spouse, significant other or child, your insurance company will pay to this injury victim up to the amount of liability coverage that you have selected.

For example, if you run a stop sign and your child suffers two broken legs, and you have $20,000 of liability coverage, your child will only be entitled to receive $20,0000 from your insurance company. Likewise, if you are a passenger in your car being operated by a driver in training and you are involved in a serious accident rendering you unable to work, you will only be entitled to the limits of your liability coverage.

In other words, be sure you have enough liability insurance because that money may not go to a stranger who you injure through negligence; it might actually go to you or a family member!

'Step Down' Provisions

However, there is something vital to consider when purchasing liability coverage: "step down" provisions.  "Step down" provisions reduce your liability coverage to the State minimum of $20,000 if a claim is made by a family member.

For example, if you have a $1,000,000 liability policy and you are involved in a serious accident in which you are at fault, anyone you hurt, not related to you, could recover up to $1,000,000 from your auto insurer. However, if your own child is injured by your negligence, your child's recovery would "step down" to just $20,000.

In our opinion, no consumer would voluntarily choose to purchase insurance coverage that protects strangers but not family members. This list is not exhaustive, but the following insurers include step down clauses in their policies: GEICCO, USAA, Progressive, Farm Bureau and Grange.

Underinsured/ Uninsured Coverage

Most cautious people would never drive a car that cost more than $15,000 without buying collision insurance.  As I write this, the web tells me I can purchase a brand new Chevy Cruze for about $20,000. Most people who bought this brand new Cruze would never risk driving this new car without collision coverage.

However, people rarely think about the primary asset at risk when they drive their car -- their lifetime earning power.  For example, if you are 30 years old and have an income of $50,000, you will earn $1,500,000 by retirement age, if you never get a raise. So, the Cruze is worth $20,000, and less each day, and you are worth $1,500,000. 

The loss of the Cruze would not ruin your life. Perhaps you would drive an older car for several years while you made payments on the lost Cruze. But, if you were unable to ever work again, because of someone else's negligence, you would never buy a new car for the rest of your life.

Yet most people would insure the Cruze but not themselves! 

So How Do You Protect Yourself?

The reality is that the worst drivers on the road have the least amount of insurance. If you have major driving infractions on your record, including drunk driving, auto insurance becomes very expensive. So, the worst drivers buy the least amount of coverage, which in Michigan is $20,000.

The only way to protect yourself from drivers with minimal, or no auto liability coverage, is to purchase your own policy of uninsured/ underinsured auto coverage.

Let 's assume John Doe is riding a motorcycle and is killed by a drunk driver. If the drunk driver is uninsured, John Doe's survivors will receive nothing, unless the drunk has personal assets. If the drunk driver has the state minimum of $20,000, the survivors of John Doe will receive $20,000. However, if John Doe had a $1 million uninsured policy, his survivors would receive $1 million of uninsured coverage from his own auto carrier when killed by the uninsured drunk driver.

If the drunk driver had only a $20,000 liability policy, the survivors of the John Doe motorcyclist would receive $980,000 from his own underinsured policy and $20,000 from the insurer of the drunk driver.

As I write this, my 29 year old married son pays $67 for $500,000 of uninsured/ underinsured auto coverage. And, underinsured and uninsured auto coverage is portable. It covers you while on vacation, while in an Uber and it covers your child when he or she is in a car with a friend. Purchase this coverage and hope you never need it.

Collision Insurance

If you want your car replaced or repaired, you must purchase collision coverage. In Michigan you cannot sue the other driver for damage to your car. Many people that have cars worth less than $5,000, opt to not have collision coverage. If another driver destroys your car, your recovery against that driver is limited to mini tort of $1,000. And while this outcome may not be fair, in every other state you could be saddled with thousands, if not hundreds of thousands, of medical debt.

Michigan's insurance law is better.

Summary

Purchase enough liability coverage to protect your assets and family members. Avoid insurers that punish their policy holders with step down provisions. Purchase sufficient uninsured/ underinsured coverage to protect your earning potential. Purchase collision coverage if the cost of insurance makes sense compared to the cost of the car. 

Michigan's insurance law is better than all other states but you still have to make common sense decisions to protect yourself, your property and those you love.

  • $4,391,000: Judgment entered on Oakland County jury verdict, 2008. A Michigan man suffered traumatic brain injuries in a motor vehicle accident, which caused a permanent seizure disorder. View More results
  • $2,536,454: Verdict for no-fault benefits for client severely injured in motor vehicle accident. 2012.
    View More results
  • $2,360,000: Jury verdict for serious electric shock injuries sustained by client in a construction accident in Ann Arbor, Michigan.
    View More results
  • $1,400,000: Verdict for no-fault benefits due to a traumatically brain injured client, in this Washtenaw County action against Allstate Insurance Company. View More results
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