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No Fault Reform 2020: Liability Coverage Changes

 With the upcoming changes to Michigan’s No-Fault Insurance Laws in 2020, we’re introducing a series of blogs that will fill you in on the basics and help you prepare. This is the first of those blogs. 

Insurance is not always the hottest topic at family dinner or while pre-gaming before the big game, but the pending changes in Michigan’s current No-Fault Auto insurance should definitely be a topics of conversation.

First, let’s get a basic understanding of some of the key policy terms, because let’s be honest, most people have no idea.

The one thing that is required of EVERY auto insurance policy is Liability coverage.  This is what covers you in the event you are at fault in a crash.  The injured party or their insurance company can come back on you for damages either to their property or persons when you are legally responsible for the accident.  You have the option to choose limits of liability ranging from $20,000 to $1,000,000 per occurrence for personal auto insurance.  

The state minimum is currently $20,000 but will increase to $50,000 in July 2020 as a result of the new legislation.

What Is Liability Insurance?

Liability is one of the first choices you make.  How much is enough?  In today’s litigious society, everyone sues everyone and the sky is the limit.  Don’t let that scare you into thinking you HAVE to have $1,000,000 in liability coverage.

Liability insurance provides the insured party with protection against claims resulting from injuries and damage to people and/or property.

Liability insurance policies cover both legal costs and any payouts for which the insured party would be responsible if found legally liable. Intentional damage and contractual liabilities are generally not covered in these types of policies.

How It Works

The new law will also have a “default” liability coverage of $250,000 unless you sign a form to acknowledge that you understand the potential risk of taking a lower liability limit. All you have to do is watch TV for 5 minutes to see three law firms that represent accident victims and get six figure settlements in court.  The new law expressly states that if you are at fault in a crash that injures someone, they can sue you for any and all expenses over what their policy covers. 

Example:  You are ruled at fault in a crash that seriously injures the driver (Johnny) of the other vehicle.  Johnny has a $250,000 limit on his Personal Injury Protection (PIP).  Johnny spends a month in the hospital and 3 months in rehab with a total bill of $750,000 dollars.  Johnny will now hire one of those fancy law firms to sue YOU for the $500,000 in uncovered medical expenses.

Who’s covered? 

The “order of priority” is what defines who is actually covered under a particular policy.  Starting in July 2020, this order of priority is very specific.  The named insured, their spouse and resident relatives living in the same house, are covered.  In the old law, those that lived in the same house whether related or not would be covered because they had access to the vehicle.  So, if you are not related to the named insured or spouse of the named insured, you are NOT covered on the policy. 

Come July, your policy is going to change. If you have questions about those changes, give us a call. And stay tuned for more information on the new laws! 

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