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Money Talks

By Dr. Gregg Dimkoff
Professor, Grand Valley State University
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Over the years, I’ve taught principles of risk and insurance dozens of times, and I always have my students turn in a paper describing a real insurance claim. They must describe what happened to kick off the claim, what insurance coverage applied, how the insurance company settled, and whether the students thought the settlement was fair. As you might guess, the majority of claims describe auto accidents.

I’m always somewhat disappointed by how little my students, and even worse, drivers in general, understand what Michigan’s no-fault driving law does, and doesn’t, cover. By many measures, Michigan has the best auto insurance laws in the country. Yet few drivers understand even the simplest coverage rules. Here are a few of the most misunderstood.

Damage to your vehicle isn’t covered
Perhaps the most misunderstood aspect of Michigan’s no-fault law is whether it covers damage to your vehicle caused by an at-fault driver. It doesn’t. No-fault covers bodily injuries, not injuries to your vehicle. Fault matters only when suing for what are referred to as the three Ds of bodily injuries: death, disfigurement and disability. If your vehicle is worth protecting, you need to buy collision insurance. Otherwise, the best outcome you can expect when someone crashes into it is recovering up to $500 by suing the at-fault driver in a mini-tort claim. Alternatively, if you elected to pay a slightly higher premium when you bought your auto insurance, your own insurer will pay your deductible up to $500.

Your personal property isn’t covered, either
Another misunderstood aspect of auto insurance is what types of personal property in your vehicle are covered. There’s no reason for confusion: Auto policies don’t cover your personal property, i.e., your possessions capable of moving from location to location. Auto insurance companies exclude personal property because the intent is for your homeowners’ insurance policy to cover your personal property anywhere on the planet. Thus, the stuff in your car trunk, glove compartment, passenger interior or pickup box likely is covered by your homeowners’ policy, but not by your vehicle policy. Of course, there will be a deductible, and both types of policies exclude certain types of personal property — stuff like music CDs and radar detectors, for example. Insurance companies exclude them because they present moral hazards.

No-fault laws save us money
Dozens of studies show that no-fault auto insurance laws work. One has to look no further than the cost of the three components of auto premiums: PL/PD, collision and comprehensive. On average, Michigan drivers pay more for collision coverage than drivers in any other state, and pay nearly the highest rates for comprehensive coverage. Why so? Bad roads, bad weather, bad deer, big vehicles and the high cost of labor compared with most states. What about PL/PD, personal liability and property damage, the largest component of auto insurance premiums? About a quarter of the states have higher PL/PD premiums than Michigan. Moreover, because of our no-fault law, Michigan residents have the best PL/PD coverage in the U.S. We are the only state with unlimited and lifetime medical coverage for people seriously injured in auto accidents. All other states limit medical payments.

Even with this unique and costly coverage, Michigan PL/PD premiums are modest. The reason is our no-fault law severely limits lawsuits for bodily injuries. The amount of premiums paid to attorneys in Michigan is a small fraction of that in tort-states. Michigan no-fault laws accomplish the goal of faster accident settlements and lower premiums.

Driving bare footed
Finally, there is a driving law many of us have known about since before high school, a law others of us learned in drivers education classes, but in fact, it’s a law that doesn’t exist. Simply put, there is no law making it illegal to drive bare footed. Not in Michigan, and not in any state in the U.S. One caveat: If you are in an at-fault accident and the investigating police officer thinks your lack of shoes contributed to the accident, you could get a ticket. Fight it in court, and you’ll likely win.

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