Auto Insurance Requirements in Michigan

Auto Insurance Requirements in Michigan

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On July 2, 2020, a bill changing Michigan's auto insurance regulations went into effect. This bill eliminates the mandate for Michigan drivers to have unlimited personal injury protection (PIP), limits the amount that medical providers can charge auto insurers and restricts insurance companies from using certain nondriving factors to determine rates.

Below we detail the new law’s key provisions, including reduced PIP coverage and discounted premiums.

Auto insurance reform in Michigan

Under the new law, all Michigan drivers will get a reduction of 44% to 100% in the PIP portion of their premiums per year, on average — with those who opt for less PIP coverage seeing the greatest discount in premiums.

Reductions to Michigan's PIP requirements may translate to savings of up to $1,771 per year.

These rate reduction estimates are based on eight initial filings from Michigan auto insurers, representing the insurance subsidiaries with the largest market share in the state. While Michigan still has the highest cost of minimum and full coverage car insurance, reductions to a policyholder's PIP limits can lower premiums significantly.

PIP coverage
Average PIP premium
Estimated annual savings
Unlimited$1,771--
$500,000$785$986
$250,000$722$1,049
$50,000$612$1,159
None$0$1,771

Only available for drivers drivers with qualifying health insurance coverage.

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There are some limitations, however, that affect who can enroll in the lowest PIP coverage levels:

  • PIP coverage of $50,000 is only eligible for those enrolled in Medicaid and their spouse and any relative living in the same residence has qualified health coverage, is enrolled in Medicaid or has PIP medical coverage under another Michigan policy.
  • Waiving PIP medical coverage entirely is only available to those on Medicare and if any relative living in the same residence has qualified health coverage or PIP medical coverage under another Michigan policy.

Below we share a list of potential annual rate reductions by city for a full coverage policy, based on the upcoming auto insurance reform to PIP and the latest Michigan rate filings available.

Estimated annual savings by Michigan city and PIP coverage selection

City
$500,000 PIP
$250,000 PIP
$50,000 PIP
Allen Park$987$904$769
Ann Arbor$767$715$622
Battle Creek$738$684$592
Bay City$722$668$571
Bedford$651$602$520
Burton$861$788$658
Clinton$793$731$618
Dearborn$1,762$1,603$1,297
Dearborn Heights$1,389$1,269$1,054
Detroit$1,737$1,563$1,244
East Lansing$728$682$593
Farmington Hills$974$903$777
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Insurers are banned from using certain nondriving factors to set rates

Auto insurers will be prohibited from using nondriving factors such as credit scores, marital status, gender, education, occupation, homeownership or ZIP code when setting insurance rates for Michigan drivers.

Despite the new bill, the legislation does not completely eliminate the effect that these personal details, such as location and credit history, will have on auto insurance premiums in Michigan.

For instance, the bill does not ban insurers from territorial rating — apart from ZIP codes — to determine insurance costs, so where you live will continue to have an impact on premiums. Similarly, aspects of a driver's credit history can be used in rate setting — but not their credit score — meaning those who have a history of making late payments could still pay higher rates.

Catastrophic claims fees are reduced alongside PIP selections

Michigan drivers pay a portion of their premiums to the Michigan Catastrophic Claims Association (MCCA). The association is a reinsurance organization that repays insurers after their policyholders make expensive lifetime medical claims — what's covered by the PIP portion of one's policy.

The MCCA’s fee was $220 before the law change took effect, but since then, it's dropped from $100 to $86 for drivers who are eligible to opt for less PIP coverage. Those policyholders who can waive their PIP requirements entirely won't have to pay any fee to the MCAA.

Medical providers are limited in what they can charge auto insurers

This bill limits the amount that hospitals, doctors and other health care providers can charge insurers for medical care covered by no-fault auto insurance. This provision attempts to address the increased costs for services that these providers have charged auto insurance companies under the current system. Research has shown that medical costs for some of the most common procedures in Detroit were 268% more expensive when auto insurers foot the bill, compared to when they are covered by Medicare. These exorbitant medical costs have been a contributing factor to the high cost of auto insurance in the state.

Current Michigan car insurance minimum requirements

Today, Michigan's financial responsibility law requires every motorist to carry car insurance with a minimum level of coverage. Under Michigan's no-fault law, drivers have the most first-party protections and benefits compared to elsewhere in the United States, and as a result, some of the highest rates nationwide. It was designed this way in part to help residents recover their economic losses with as little downtime as possible and to limit court backlogs. There are other ways to prove financial responsibility besides car insurance, but these alternatives may expose your personal assets.

Always have your insurance ID card with you when you drive, in case you are pulled over. This is the most common occasion when you will be asked to show proof of insurance besides registering your car or renewing the registration. A valid certificate issued by the state treasurer or secretary will suffice as well.

Mandatory coverage

Current Michigan required minimum limits

Personal injury protection (PIP)

Until full recovery (no longer needing rehabilitation)

Property protection insurance (PPI)

$1 million per accident

Bodily injury/Property damage (residual BI & PD)

$20,000 per person/$40,000 per accident/$10,000 for property damage
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Michigan auto insurance coverages

A valid Michigan insurance policy will at least include personal injury protection, property protection insurance and residual bodily injury and property damage coverage. They cover all of your medical expenses and most of your property damage liability from an accident.

Michigan also requires a minimum amount of residual liability coverage. Because every driver claims from their own PIP first, and there is a limited right to sue, only the most serious or outlying cases make it to court, which the residual liability would cover.

  • Personal injury protection (PIP): pays your medical bills until you're done with rehab or recovery, 85% of missed income, daily household subsidy
  • Property protection insurance (PPI): $1 million per crash for any collateral damage to stationary property
  • Residual bodily injury and property damage: covers the other party's medical bills and car repairs, under limited circumstances

Personal injury protection (PIP): covers your medical expenses. PIP in Michigan will pay for you until you are no longer physically recovering or rehabilitating for injuries from any given accident, whether or not it was your fault. It's the most generous coverage, since there is no ceiling to the amount of coverage you can receive. Other benefits of your PIP include 85% of your lost income (in case you cannot work because of your injuries) and a daily household subsidy of no more than $20/day. You may receive these additional benefits for as long as three years after the accident in certain cases.

Most insurers will ask you to bear a certain amount of costs before they step in — also known as a deductible amount; it is usually $300 or $500 per accident, and varies by insurer. Furthermore, if your health insurance plan covers auto accident injuries, you can choose to coordinate your car insurance with your health insurance coverage for a lower PIP premium. In other words, when either your medical expenses or even income loss benefit is primarily (first) covered by your health insurance, your PIP coverage only comes in for costs not covered, and so your premium will decrease accordingly.

Property protection insurance (PPI): a coverage unique to Michigan motorists, PPI covers the costs to repair any collateral property damage you cause in an accident up to a total of $1 million per crash. This typically only covers stationary objects — examples include a corner of the building or a light pole that your car crashed into. This usually doesn’t cover another driver’s car, unless it is property parked by the side of a road when you run into it.

Bodily injury and property damage (residual BI/PD): collectively known as the liability insurance, bodily injury and property damage cover the other driver’s injuries and property damage costs, respectively, from an accident you cause. This is the only Michigan required coverage that has stated limits you may choose from, but you must always at least be covered up to $20,000 per injured person and a total of $40,000 for two or more persons and $10,000 for property damage. You may see insurers refer to these limits in a split limit format that looks like this: $20,000/$40,000/$10,000.

In Michigan, BI and PD are residual because the state limits its motorists’ right to sue in exchange for the generous no-fault benefits. Only under a few exceptions will this coverage come into play. However, when it does (for example, a driver died because of you and their family sue you for $50,000 for the pain and suffering they endure), your insurer will pay out up to your policy's limits. If you are not sufficiently covered, your assets will be on the hook for the rest in a lawsuit.

Another complication is that Michigan's basic residual property damage does NOT cover repairs and fixes to another car (unless parked; see above) you collide with in an accident you cause, as most other states would. It can only be accessed in serious accidents, when you're out of state or when you hit an out-of-state driver (more below).

Optional car insurance coverage in Michigan

Apart from choosing higher limits of the required-residual BI/PD coverage, here are a few unique Michigan optional coverage that drivers may find as helpful additions:

Limited property damage: under the mini-tort law (covered below), when you are more than 50% at-fault for a collision, the other driver can sue you for their car’s damage. The most the other driver may sue you for under the mini-tort law is $1,000, and you are covered for judgments up to that amount if you buy this coverage.

Collision: this pays for your own car's repair when it is damaged by you driving into something. Typically, collision will cover your repair costs regardless of fault, after you have paid some portion of the costs equal to the deductible amount you’ve chosen. Michigan insurers may offer you a choice of the following types of Collision coverage, with different scopes and premiums:

  • Limited: the lowest cost type, limited collision, pays for your vehicle’s damage when you are less than 50% at-fault for the crash. You can choose to not have a deductible, but your premiums will be higher.
  • Standard: the standard collision, known as physical damage coverage (along with comprehensive), will cover you regardless of your negligence. You must always choose a deductible with this option.
  • Broad form: costs the most out of the three options, but asks for least out-of-pocket. Broad form collision pays for your damage regardless of fault, and waives your deductible when you are less than 50% to blame.

Your right to sue

For most accidents, your right to sue is limited in Michigan as part of the no-fault law's unlimited medical/economic loss benefits. You are almost never in a situation to sue the negligent driver for pain and suffering (noneconomic loss), except under several circumstances:

  • Serious injuries or death: if someone in your car is seriously injured or permanently disfigured (subject to the jury’s judgment), or even dies from the accident, you or his or her family member may sue the negligent driver.
  • Accidents involving non-Michigan residents: when you are involved in an accident with a non-Michigan resident, he or she is not subject to the Michigan no-fault law, and so will not be limited in their right to sue, unless that is also the case in their resident state.
  • Accidents outside of Michigan: if you get into an out-of-state accident, where there is no limit to sue, the other driver may sue you.
  • Mini-tort: if the other driver believes you are more than 50% at-fault for an accident, he or she may sue you for up to $1,000 for vehicle damage in a mini-tort claim court. If the other driver is covered by a type of collision coverage and has had to pay a deductible, you will need to pay him or her that deductible amount back. This is referred to as the "mini-tort" law, and Michigan insurers have a specific coverage (limited property damage) for it.

Alternative proof of financial responsibility

Provided that you meet the requirements, Michigan’s secretary of state may allow you to replace getting a car insurance policy with three alternatives. You must understand that although they satisfy the financial responsibility law, you'll be both responsible for your own medical bills, as well as any claims or judgments others bring against you. Here are the alternatives:

Surety bond: by purchasing a surety bond with a licensed surety company in Michigan, you may file a copy of the bond and apply for a certificate with the secretary of state. This will be your surety of promise that you will pay all necessary payments for the property damage and personal injury that you cause to another person in an auto accident. If you cannot pay any claims or judgments made against you, the surety company will step in to pay, and then try to recover from you.

Real estate bond: a real estate bond involves two other individuals, both of whom own real estate in the state. By signing the bond and listing their real estate as a lien, this bond is a promise that you will pay for any property damage and personal injuries that are your fault, and that the other two individuals will pay in your place if you cannot satisfy the liability. A valid real estate bond must have a judge’s approval in the county court where the real estate is located, and the clerk of the court has to file the bond and send a copy of it to the secretary of state.

Cash/Security deposit: a deposit in cash or security is only valid proof of financial responsibility when you make it with the state treasurer, and get a certificate of deposit from the office. The treasurer will specify the sum, and you may make the deposit in either cash or securities, such as government bonds or notes. Whenever you cause an accident, the deposit will be used to cover any medical expenses or property damage costs you are considered responsible for.

Mark is a Senior Research Analyst for ValuePenguin focusing on the insurance industry, primarily auto insurance. He previously worked in financial risk management at State Street Corporation.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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