Information on Purchasing Auto Insurance
In Michigan every registered motor vehicle is required to be insured with no-fault automobile insurance. Although you don't have a choice about buying auto insurance, you do have some choices about how much you pay and who you choose as your insurance company. You may have recently experienced an increase in your premium or maybe you just want to check out some other companies but you don't know where to start. The Department of Insurance and Financial Services (DIFS) can help by giving you the information you need to understand what affects your premium. DIFS’ website also has tools to help you locate different insurance companies, agencies, and agents.
- Why should I insure my vehicle?
Michigan law requires no-fault insurance. If you or your family are injured in an auto accident, your auto insurance will pay all reasonably necessary expenses with no maximum limit, as well as wage loss benefits and up to $20 per day for replacement services for up to three years. In a serious accident, this can amount to hundreds of thousands of dollars. This security is one of the most important reasons to purchase insurance.
- What happens if I don't insure my motor vehicle?
If you own a car and you drive it, or allow someone else to drive it without basic no-fault insurance, you can be sued and held personally liable for all injuries and damages that result from an accident, including your own. You may also be convicted of a misdemeanor and fined $200 to $500, put in jail for up to one year, or both. The court may also order your license suspended for 30 days or until you are able to provide proof of valid insurance.
- What auto insurance coverage do I have to purchase?
There are three basic parts to a no-fault policy that must be purchased and carried on every vehicle. They are:
Personal Injury Protection (PIP) - PIP pays all reasonable and necessary medical expenses for your lifetime if you are hurt in an auto accident, and wage loss and replacement services for up to three years after the date of the accident.
Property Protection (PPI) - PPI pays up to $1 million for damage your vehicle does in Michigan to other people's property, such as buildings and fences.
Residual Bodily Injury and Property Damage Liability (BI/PD) - BI/PD pays, up to the limits of the policy, your defense costs and any damages you are found liable for as the result of an auto accident in which someone was killed or seriously injured. The minimum limits of coverage that everyone must purchase are $20,000 per person who is hurt or killed in an accident, $40,000 for each accident if several people are hurt or killed, and up to $10,000 for damage your vehicle does to property damage in another state. These minimum limits are often referred to as 20/40/10. You can purchase higher limits of BI/PD coverage, which will be explained in the next section.
You can learn more about each of these mandatory no-fault coverages in our publication: Brief Explanation of Michigan No-Fault Insurance. You can also obtain additional information by reviewing: Your Guide to Auto Insurance For Michigan Consumers.
- What are some of the extra (optional) auto insurance coverages I can buy?
Some drivers choose to purchase additional coverages or purchase higher coverage limits for the mandatory coverages. These additional coverages and limits are optional and should be purchased based on your own circumstances. You can also learn more about these optional coverages in the publications listed in the previous section. The most common optional coverages are:
Physical Damage for Your Car (Collision and/or Comprehensive)
Your basic no-fault policy does not pay to repair or replace your car if it is damaged. Therefore, if you want to have your vehicle covered if it is damaged or stolen you must purchase collision and/or comprehensive coverage. Collision coverage pays to repair or replace your vehicle if it is damaged in an accident and is available with or without a deductible. Comprehensive coverage pays if your car is stolen, collides with an animal, or is accidentally damaged by falling objects, fire, flood, or vandalism. You can purchase both of these coverages with deductibles in an effort to reduce the cost of your insurance.
There are three different collision coverage options to choose from. You can learn more about these options by reading our consumer publication: The Three Types of Collision Coverage.
When deciding whether to purchase physical damage coverage on your car, you need to consider what the coverage would cost in comparison with how much you could actually receive if the car is damaged. You may decide not to buy collision coverage, to buy a lower cost type of collision coverage, or to change the amount of your deductible.
In addition, although Michigan law does not require you to carry Comprehensive and Collision coverages on your vehicle, your lender will likely require you carry these coverages if you financed your vehicle. The loan documents will specify what coverages must be maintained and how proof of coverage is to be submitted to the lender.
Uninsured and/or Underinsured Motorists Insurance (UM/UIM)
Uninsured motorist coverage is an optional coverage that compensates you for pain and suffering and excess wage loss if you are injured in a hit and run accident or if an uninsured motorist strikes you. Underinsured motorist coverage compensates you for any difference between what the court awards you for pain and suffering caused by an insured driver and the maximum you are able to collect from that person and/or his or her insurance carrier.
Residual Bodily Injury Liability Insurance - Increased Limits
Many people choose to purchase increased limits of residual bodily injury liability insurance coverage. In the event of a serious accident, your liability may be more than the minimum 20/40/10 liability coverage you are required to purchase. To protect themselves, many people buy extra liability coverage (for example, $50,000 for each person, $100,000 for each accident, and up to $25,000 for property damage). You may wish to speak to your agent about other coverage combinations available through your insurance company.
Limited Property Damage Liability Insurance ("Mini-Tort")
Insurance companies also offer "mini-tort" coverage. Under Michigan law, if you are 50% or more at fault in an accident, you can be sued for up to $1,000 in damages to another person's vehicle that is not covered by collision insurance. Many consumers purchase this additional liability coverage to protect themselves from this specific liability.
Towing and Rental Car Coverage
Towing and Rental Car Coverage is an optional coverage available from most insurance companies as an additional coverage on an automobile insurance policy. This coverage generally covers or reimburses the cost of towing and/or a rental car for covered events (accident, breakdown, flat tire, etc.). The cost is usually small in relation to the total policy premium.
Alternatively, many insurance agencies offer memberships into clubs that offer these types of benefits to their members. These clubs generally offer limited reimbursement for the same types of events. The memberships may also offer additional benefits, and the membership fees vary greatly.
You can learn more about each of these optional coverages in our publication: Brief Explanation of Michigan No-Fault Insurance. You can also obtain additional information by reviewing: Your Guide to Auto Insurance For Michigan Consumers and Road Service Club Memberships.
- How are rates developed?
Michigan's auto insurance is regulated by state law on a competitive basis. This means that rates cannot be considered excessively high so long as there is competition among companies. Insurers are prohibited from communicating with other insurers about the rates they are setting.
There are two types of auto policies: group and non-group (or individual). A group policy is one offered to a group or association's members. Coverage provided by group and non-group policies are generally similar. However, different companies offer different coverage options in their policies and a group policy may qualify you for discounts to save money.
State law sets forth the factors companies use when setting their auto rates. More rating factors are allowed for group policies than for non-group policies as long as they are specified in the company’s underwriting rules and applied uniformly and consistently to all of the company’s policyholders. Some of the factors that companies can use in setting rates include the type of vehicle you own, your driving record, your age or length of driving experience, daily or weekly commuting mileage, and number of vehicles insured or number of licensed drivers in the household.
Companies use the premium they collect to pay claims. In setting premiums, companies must estimate how much money they will pay for injuries related to accidents and for the repair or replacement of vehicles. Michigan law does not provide auto insurance companies the ability to negotiate discounted services with health providers. In addition, it is difficult to project future medical costs because auto insurers could pay benefits for a seriously injured person for the rest of their life. The high cost of medical expenses and the unlimited nature of Michigan no-fault benefits are some of the reasons premiums will increase.
Insurers writing non-group policies are required at least annually to provide consumers the opportunity to request a description of the rating classifications they use in setting rates. This notification must occur with the notice of the renewal of the insurance policy. The insurers also must provide consumers with a process to use if the consumer believes the premium being charged is incorrect. Under this process, any consumer believing the premium is incorrect based upon the rating classifications can ask for a review of the rate by the company. DIFS can review the rate if the consumer believes it still is incorrect after the company review.
- Does shopping for better rates work?
Absolutely! Insurance companies in Michigan are competing against each other to provide the lowest possible rates, broadest coverage, and best possible service. Competition works best, however, when drivers take the time to shop for the rates and coverage that are best for them. Some of the reasons shopping works:
- There are many companies offering a wide variety of rates in every area of the state. Sometimes the best rates and best service may come from a company you are not familiar with today.
- If you are eligible for coverage under law, every company must insure you.
- The economics of insurance are like the economics of any other product or service. Companies offering more expensive coverage lose customers due to the cost. The companies must either lower their rates or be satisfied with fewer customers. Consumer choice can bring pressure on companies to lower their rates.
- Shopping for insurance is not as hard as it seems. Your Guide to Automobile Insurance For Michigan Consumers provides the information you need to become a knowledgeable shopper. Shopping for insurance may not be exciting, but it will probably save you money.
- In almost every instance, every company must cover your auto, wherever it is. There are a few instances where you may be deemed "ineligible" that will be described later. However, for the most part, whether you live in Ionia, Inkster, or Iron Mountain, every company writing auto insurance has a rate for you and must provide coverage. You may contact any company or agent selling insurance in Michigan and ask for a quote; you don't have to live in the area in which the agent is located to get a policy from a company he or she represents.
- There are many companies offering a wide variety of rates in every area of the state. Sometimes the best rates and best service may come from a company you are not familiar with today.
- How do I find insurance companies, agencies, or agents?
This web site can help you in contacting companies and agents. Although some insurance companies do not use local agents, you can call the companies directly to ask for a quote. In nearly all circumstances, an insurance company cannot deny you coverage based on where you live or whether they have an agent in your area.
Use our Insurance Entity Search Page to search for any or all companies that are licensed to sell insurance in Michigan. Scroll down the insurance entity page screen and either request a list of all property and casualty insurance companies (this list will include companies that sell home insurance as well as other types of property and casualty insurance) or request information for a specific company. Once you have made your selection, click the "Submit" button at the bottom of the screen, and you will receive information about the company (or companies) that you requested.
You can also find insurance agents or agencies in your area by searching information we have on our web site. You can search for a particular agent or agency by name, or you can search for all agents or agencies in your area by city or zip code. The search results will provide you with contact information for the agent/agency and will provide you with the names of the insurance companies that the agent/agency is eligible to place business with.
Your local Yellow Pages might also be a good place to start shopping for companies, agents, or agencies . Some companies, such as State Farm or AAA, have agents who represent only that company. Looking in the Yellow Pages under Insurance will tell you if there's a local agent for these companies. Other insurance agents are considered "independent" insurance agents, meaning they represent more than one company. These agents will advertise in the Yellow Pages and may also advertise the companies they represent.
- What information should I have available when I contact a company or an agent?
Be prepared to provide any personal information (address, telephone number, social security number, driver license number, names of other people living in the household, etc.) and information about your car and driving habits (vehicle identification number, whether you use your vehicle to drive to and from work or just for pleasure use, safety and security devices such as air bags and anti-lock brakes, whether you have had any tickets or accidents in the last several years, etc.).
You should also refer to the declarations page of your current auto insurance policy for your current coverage and limits. The declarations page is the page of your policy that lists all of your current coverages, limits, and deductibles, as well as the current premium you are paying . The information will be useful to any agent/agency/company that is providing you with a quote. It may make the process even easier if you provide a copy of your current declarations page to anyone providing you with a quote to make sure his or her quote is for coverage that is similar to what you already have.
If you are uncomfortable releasing this information, you should be able to answer questions about your current coverage over the telephone without providing a copy of your declarations page.
- What are the questions that I should ask while shopping for auto insurance?
You are eligible for a wide variety of coverages. Make sure you know what coverages are mandatory and be familiar with any of the optional coverages you might need or want. You can learn more about each of the mandatory no-fault coverages as well as some of the common optional coverages in our publication: Brief Explanation of Michigan No-Fault Insurance. You can also obtain additional information in Your Guide to Automobile Insurance For Michigan Consumers. Be certain to ask for the coverages that meet your specific needs and ask your agent about the difference in cost if you purchase a higher level of coverage than what is mandatory.
Michigan law also allows companies to provide discounts on the cost of coverage. Most people will be eligible for one or more discounts with a company. Although agents and company representatives generally will tell you the discounts for which you are eligible, be certain to ask about them. They can save you money. Refer to pages 10-13 in Your Guide to Automobile Insurance for a listing of possible discounts.
You should also ask about group discounts that might be available. Membership in some associations or groups might qualify you for a discounted group policy.
Be certain to ask for the coverage that meets your specific needs. When you are deciding on what coverages to purchase (such as collision or comprehensive), consider what your vehicle is worth, how much it would cost to replace it, and how much you can afford to spend for insurance.
- What information will the agent give to me while I'm shopping?
An agent will provide a premium quote from among the companies he or she represents. You may ask the agent for additional quotes from other companies, or contact another agent or agency representing different companies and ask for additional quotes. You can search for an agent or for an agency on our web site.
- What other information should I know about a company?
Service on your policy is an important part of the contract of insurance you are purchasing. Service includes such things as properly crediting your account with your premiums, and the manner in which claims for losses that you might file are handled.
It is not likely, but possible, a dispute may arise between you and your insurance company over some aspect of the policy. Typically, this occurs as you negotiate the settlement of a claim you've filed. DIFS can help people who are having difficulties with their company. As we do so, we keep track of the number and types of complaints against a company. This information may help you decide whether to buy insurance from a particular company. Click here to display complaint ratio information, and remember this information is just one factor for your to consider in choosing a company.
- How might I reduce my premium if I want to stay with my current insurance company?
There are a number of ways that you might reduce the cost of your insurance. For example, you might ask about premium savings if you increase your deductibles. Doing so will mean you pay more out of your pocket should a loss occur, but it will reduce the premium you pay.
You also could ask about steps you could take to receive a discount on your premium from the company. For example, some companies reduce your premium if you have certain safety features such as air bags, anti-lock brakes, anti-theft devices, if you are a good student, or if you have more than one type of policy with the same company (such as your auto insurance policy and a homeowner or renters insurance policy).
Discounts may also be available if you have appropriate health insurance coverage and you ask to "coordinate" your auto insurance with your health insurance. You may not coordinate if you have Medicaid, Medicare, or a Medicare supplement policy. Ask your agent about the option to coordinate coverage. If you coordinate, your health insurance policy becomes the primary payer for any injuries resulting from an auto accident. Your auto insurance pays for reasonable expenses not covered by the health policy. If you have health insurance, check with the company to make sure your health insurance coverage will pay for injuries related to a car accident before you try to coordinate coverage.
Also, you might ask about group discounts that are available. Membership in some associations or groups might lower your premium.
You can review another consumer publication: How to Reduce the Cost of Your Car Insurance for tips on reducing the cost of your insurance. Your Guide to Automobile Insurance For Michigan Consumers also contain additional suggestions.
- What does it mean to be ineligible for coverage?
Michigan law guarantees that auto insurance will be available to all eligible Michigan citizens. The law says you are eligible if you have a car registered in Michigan or have a valid (not suspended or revoked) Michigan driver's license. However, there are a few reasons why a company can refuse to insure you. If an agent or company says you are not eligible for coverage, they must give you the specific reason you are not eligible for an auto policy with that company.
If you are not eligible for coverage directly in the voluntary market, you are still eligible for coverage through the Michigan Auto Insurance Placement Facility (MAIPF), although the rates may be higher than if you insured directly with an insurance company. The MAIPF is created by state law, but it is not a part of state government. You can find out more by reviewing the publication: The Michigan Auto Insurance Placement Facility. Any agent must submit an application to the MAIPF if you request him or her to do so.
- What should I never hear from an insurance agent or an insurance company?
Michigan law makes it illegal for an insurance company or an insurance agent to do certain things. We want to know if you are told any of the following statements as you talk with an agent or a representative of a company. Call us immediately toll free at 877-999-6442 if you're ever told any of the following (in a very limited number of circumstances these statements might not be illegal, but our office can verify this for you):
- We do not write in that area
- We are not taking any new customers
- We do not have an agent in your area
- We cannot write your auto insurance unless you insure your home with us
- You are not eligible for a policy with our company (no explanation of ineligibility is provided), but we can place you with the MAIPF.
- We do not write in that area
- Who can help if I am having a problem shopping for insurance?
We want to know if you have a problem with an agent/agency or insurance company during the process of shopping around for coverage. If you disagree with an insurance company about whether you are eligible for coverage, try to resolve the issue with the insurance company. If you still do not agree with the company’s position, ask them to provide specific rules or language they believe excludes you from eligibility. If you are still dissatisfied, please contact our Office of Consumer Services toll free at 877-999-6442 to ask questions or to file a written complaint against the company, agent, or agency. You can click here to access the various complaint forms provided by DIFS.
The answers provided are not meant to be a substitute for legal advice.