Here is a question I received that I think more people are wondering about and may not have had the opportunity to ask in class. Quite honestly I didn't have the answer either but suspected Jennifer was getting bad advice. I thought No Fault limited property damage and liability coverage but would have been parading my ignorance to try to answer. So I asked the expert, Kim Bergstrom who provides KCC's coverage as well as our personal insurance coverages. Here is the question and what she had to say.
Question - I am trying to go through the insurance portion of this class and make sure that we are covered as he suggested. Yet, as I am doing this I have people telling me that because we are a no fault state that increasing the liability on the auto insurance is a waste of money because it covers our car not the other car. I am so confused about insurance that I may as well be reading German :). Would you suggest still following Dave's advise in increasing liability to 500,000? Thank you Jennifer L.
Answer - Hi Dave, It is confusing! Michigan is a no fault State, and you're right, it mostly applies to the coverage for physical damage to your vehicle but it also applies to damages for minor injuries. In these cases, each person mostly goes to their own auto insurance carrier for coverage.
There are some exceptions that apply to the physical damage coverage, but they are all addressed by coverages (PPI and Limited Property Damage Liability) that are on all auto insurance policies, so I’m only going to address the exceptions to the bodily injury liability coverage. By the way, I agree with Dave that it is a really good idea to increase your liability limits to at least $500,000:
1. If you make a mistake while driving and cause an accident in which someone is seriously injured you can still be sued and held responsible for damages as a result of pain and suffering, loss of consortium and wage loss beyond the 3 years the PIP coverage provides. Currently the law says to be able to recover damages from an at fault driver/vehicle owner you must meet one of the three following thresholds:
- Scarring or disfigurement
- Serious impairment of a bodily function. (This is open to interpretation and highly litigated.)
You always risk the possibility of someone suing you and being awarded damages that are more than your policy liability limits. In that case you could be required to pay the additional amount from your personal assets. Higher liability limits increase the protection of your personal assets.
2. By having the higher liability limits you can also purchase matching limits for uninsured/underinsured motorist coverage. This protects you and your family members for injuries you sustain by a driver who either has no insurance or is driving with lower limits than you have.
Claim Examples with $500,000 Uninsured/Underinsured motorist limits:
- Let's say you or a resident relative are seriously injured as a result of someone else's negligent driving and have a claim that is worth $300,000. If the at fault driver/vehicle owner didn't have any insurance, you would be able to make an uninsured motorist claim against your own insurance company and receive the $300,000 compensation from them. They would pursue reimbursement from the uninsured at fault driver/vehicle owner, but he/she probably doesn’t have assets, but that makes it the insurance company’s problem and not yours.
Same scenario as above, but the at fault driver/vehicle owner is driving with the minimum liability limits required in Michigan of $20,000/person and $40,000/accident. Their insurance company would cut you a check for $20,000 and tell you to try to recover the additional $280,000 from their insured who likely doesn’t have any assets either. You would be able to collect the $280,000 from your insurance company under the Underinsured Motorist coverage and again, it would be their responsibility to try to recover from the at fault driver/vehicle owner.
I hope you find this helpful. Please let me know if you have additional questions or if I can be of any other service to you.
Dave Smith is part of the KCC finance staff and a Dave Ramsey Certified Coach.