MCCA Fee: Why The Change?

Michigan’s auto insurance has been a topic of interest to many for a long time, often due to its cost relative to auto insurance in other states.  While our no-fault law is viewed negatively by some consumers that haven’t been involved in a major auto accident, the Personal Injury Protection benefits provided by Michigan’s law, which far exceed those of any other state, have helped many who were seriously injured in auto accidents avoid bankruptcy and receive the care they need.  

All auto insurance policies issued in Michigan provide medical and rehabilitation expense coverage with no time limit or maximum dollar limit for individuals injured in auto accidents, as well as replacement of lost income up to $65,000 per year for up to three years.  Over half of the claim expenses paid in 2017 were for attendant care for individuals who were unable to care for themselves following a serious auto accident.  

As a case in point, we have a client who was severely injured in an auto accident in 1994 who is still receiving medical and attendant care benefits paid by his auto insurance policy.  So far, almost $7,000,000 has been paid by his insurance company for these expenses.   In any other state, his coverage would have been exhausted long before receiving the care that he needed.  

Because a claim of this size could threaten the financial stability of some insurance companies, a non-profit fund known as the Michigan Catastrophic Claims Association (MCCA) was established in 1978 to provide a form of reinsurance to all insurance companies writing auto insurance in Michigan.  Currently, an insurance company’s medical expenses over $555,000 for any single claim are reimbursed by the MCCA.  

Each year a board of directors for the non-profit MCCA reviews past claims and expenses, as well as projections for future injuries and related expenses, and adjusts the MCCA charge accordingly.  Each insurance company is required by the state of Michigan to collect the MCCA charge as part of auto insurance premiums and remit the funds to the MCCA.  

For the period of July 1, 2018 to June 30, 2019, the annual charge is increasing from $170 per vehicle to $192 per vehicle, a $22 per year increase per insured vehicle.  This charge of $192 is the same for each vehicle regardless of the type of vehicle (old vs. new), the coverage on the policy (PLPD vs. full coverage), or the driver of the vehicle (experienced vs. youthful).  Insurance companies do not determine the charge and may not use the funds for their own business.  The actual charge shown on your policy will be slightly higher because the mandatory charge also includes a few dollars to fund the Michigan Auto Theft Prevention Authority.  

You can find the charge listed on your policy where premiums for the coverages are shown.   Each insurance company uses slightly different language when describing the charge, but it is generally noted on an insurance policy as “MCCA/MATPA”, “Programs Required by State Laws”, “State Mandated Assessments”, or something similar.  

We know that changes in insurance costs can be disruptive to your budget and think it is important that you understand the source of this change.  We feel there are reasonable ways the state of Michigan and the MCCA can better manage these rising expenses (see here), but that’s a story for another day.  
 

What Is an Independent Agent?

Boer Insurance Group is proud to be an Independent Agency, which means we aren't tied to any specific insurance company.  This affords us the flexibility to find the right combination of coverage and price for you by comparing multiple options and helping determine which one best meets your goals.  Being an Independent Agency allows us to stay updated on coverage enhancements, underwriting trends, and pricing variations.  This allows us to provide unbiased advice to our clients and our community. 

You're probably thinking that all sounds good but are wondering what it actually looks like.  Well you're in luck!  Our pro-bono graphic designer (i.e. Brian's wife) prepared the following, which we think sums it up quite well.  The difference is subtle but the impact is significant.  Which looks like a better model to you?  

                                                                            (Above: Our Chosen Model)                                                                             (Below: The Typical Model)

                                                                           (Above: Our Chosen Model)

                                                                           (Below: The Typical Model)

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Tips for Managing Auto Insurance Cost

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Most of us are restrained by a budget, which may make selecting the “cheapest” auto insurance policy attractive at times.  However, this is not an advisable insurance strategy for a number of reasons.  Instead, consider the following ways to manage the cost of quality auto insurance without taking unnecessary risks or putting your financial future at stake.

Factors (Somewhat) In Your Control

1) Improve your credit score.  Seems strange, but it’s true.  All insurance companies use Insuring Scoring when developing insurance rates.  Your Insurance Score is a version of your credit score, modified for a number of factors each insurance company feels best reflect your likelihood of filing claims.  Insurance Scoring was approved by state regulators a number of years ago and has proven to be an accurate factor when rating insurance products.  Improving your Insurance Score can significantly reduce your insurance costs.  There are a number of free resources available online for improving your credit score (and consequently, your Insurance Score).

2) Keep a clean driving record.  When you are issued a ticket, insurance companies re-assess your likelihood of being involved in an accident and adjust your rates accordingly.  Statistically speaking, drivers with tickets are more frequently involved in accidents than drivers without tickets, so keeping your driving record clean will help to maintain stable insurance rates.

3) Join an industry association.  Many insurance companies have sizable discounts for members of certain professional organizations, like the Michigan Association of CPAs (MICPA), the Michigan Education Association (MEA), and a number of Engineering Societies.   

4) Choose vehicles with top safety ratings.  One ride in your Uncle’s beat up rust bucket makes it obvious why safer vehicles should be less expensive to insure.  Vehicles with top safety features better protect the driver and passengers from injury, thereby reducing medical expenses associated with an accident.   

5) Use higher deductibles.  Insurance companies reward drivers that choose higher deductibles.  Choosing a higher deductible eliminates the urge to file a small claim, which reduces claim expenses incurred by the insurance company.  Most of these claim expense savings are passed along to the client in the way of reduced premiums.     

6) Consolidate.  Insuring your auto, home, umbrella, and other insurance policies with the same insurance company often creates the best total value.  

Factors (Mostly) Out of Your Control

1) Gas prices are (relatively) low.  Sounds like a good thing, right?  It is, in terms of the cost to fill up your tank.  But lower gas prices allow more people to drive more miles, which tends to result in more car accidents.  An increase in car accidents places upward pressure on insurance rates.

2) Medical costs are on the rise.  Have you noticed the increase in your health insurance cost this year?  Your health insurance plan probably costs between 18% and 30% more than it did last year.  An auto insurance policy covers medical expenses incurred due to a car accident, so auto insurance companies are feeling this squeeze as well. 

3) Vehicle repair costs are rising.  Have you taken your car to the shop recently?  If so, you probably noticed that labor and material costs are rising.  In addition, the increasing amount of technology included in even base model vehicles can add thousands of dollars to a seemingly simple repair.  These repair costs are passed on to insurance companies, which means they need to charge more for insurance in order to cover the increased repair costs.  

4) Distracted driving is catastrophic.  Insurance companies expected driver-assist safety features to cause a decrease in car accidents, and therefore a decrease in insurance costs.  However, distracted driving has caused the reverse to occur: there are more car accidents than ever and the severity of those car accidents is unprecedented.  Claims data shows an alarming number of car accidents where the at-fault driver didn’t even tap the brakes before impact.  These types of accidents cause serious damage to vehicles and significant injuries to drivers.

This article was written by Brian Boer.  Please reach out to Brian (brian.boer@boerinsurance.com) or any member of our team to discuss any of these tips that interest you.  

What's All The Noise About No-Fault Auto Insurance Reform?

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You may have read or seen on TV that our state legislature is taking another crack at reforming Michigan’s no-fault auto insurance law.  Over the past ten years there have been multiple failed attempts to pass reform legislation.  It appears, at least at this juncture, that this time around the proposed legislation may have a better chance of going somewhere.

What are the issues?  Michigan is the only state in the country that requires owners of all registered vehicles to have unlimited medical coverage on their auto policy.  This coverage, known as Personal Injury Protection, pays for medical expenses (regardless of who caused the accident) without any maximum time or dollar limit.  Because of this extraordinary mandated benefit, auto insurance premiums in Michigan are some of the highest in the country. 

What are they trying to change?  There are actually two competing legislative bills being debated, but the main points of both include the following proposed changes:

  • Allow policy holders to choose an amount of medical benefits.  Options could include unlimited (like all policies are now), $1,000,000, $500,000, and $250,000.   Choosing a lower coverage amount should reduce claim costs and premiums to some extent, but some studies indicate premium savings from allowing drivers to choose lower coverage limits would be minimal.
  • Implement a medical fee schedule.   Currently, there are no limits on the fees medical providers can charge an auto insurance company for services provided to people injured in auto accidents.  Other types of medical insurance, such as Medicare, workers’ compensation, and group health insurance, have fee schedules that limit how much is paid for specific medical services.   The lack of a fee schedule in auto insurance allows medical providers to charge several times the amount they would charge under other medical insurance plans.  For example, fixing a broken arm might cost $2,000 if paid by a group health insurance policy, but it could be billed at $8,000 under an auto policy.  Implementing a fee schedule probably has the best promise of actually reducing claim costs and premiums. 

Who opposes these changes?  Groups that oppose these changes include trial lawyers, medical service providers, and groups who believe the unlimited coverage currently provided is instrumental in saving and improving the lives of people who are critically injured in auto accidents. 

We feel that giving consumers a choice in how much coverage they buy is a positive change, as long as the unlimited coverage option is still available.  But we think a more impactful change would be to allow insurance companies to negotiate prices with medical providers and implement a fee schedule on medical services.

Any legislation is far from approved, and many prior attempts to reform no-fault auto insurance have failed, so stay tuned for future updates.

This article was written by Dave Boer.  Please send questions and comments to Dave at david.boer@boerinsurance.com.

How Should The Recent Natural Disasters Impact Home Insurance in Michigan?

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The U.S. is no stranger to natural disasters.  However, the cumulative damage resulting from Hurricanes Harvey and Irma and the California wildfires is unprecedented.  Insurance claims in the U.S. from Hurricanes Harvey and Irma are expected to reach $55 billion and insurance claims related to the California wildfires are anticipated to be in excess of $6 billion. 

As much as we Michiganders like to compare the Great Lakes to an unsalted ocean, we’re unlikely to ever experience a true hurricane.  And although over 50% of Michigan is covered by forests, it’s unlikely that Michigan would treat us to a prolonged dry spell that usually accompanies a wildfire.  So how should the recent natural disasters impact our insurance here in Michigan?

First, they’re a reminder of the importance of keeping detailed records of your property.  No home is immune to the destruction a tornado or fire can cause.  If your home was entirely destroyed, do you have adequate information about it?  Many people will find details about their home on the Kent County website (click here to search for yours).  However, it’s important to have your own pictures or video to validate your home’s size, build quality, number of bathrooms, etc.

Detailed records of your personal property are equally, if not more, important.  Do you know how many suits you have?  What about the value of your jewelry collection?  In the event of a total loss to your home and everything inside it, a personal property inventory list is crucial.  Your inventory list should include the following for each piece of property: a detailed description, the estimated cost to replace it, and the purchase date.  If you consider that overkill, we suggest keeping detailed records of your most valuable items and recording a video once per year that captures the majority of your belongings.

Second, the recent natural disasters are a reminder of the importance of having the right insurance.  Do you have enough coverage on your policy to rebuild your home if it were totally destroyed?  Most policies include an inflation guard that increases the policy’s coverage each year, but building costs may outpace inflation.  Does your policy provide enough personal property coverage to replace all of your belongings?  Keep in mind that, unless disaster strikes in early November, you likely won’t be getting any Black Friday deals.  Most people assume the personal property coverage automatically included on their policy (which is a fixed percentage of the coverage on their home) is adequate.  However, most claim representatives agree that personal property coverage is one of the two most commonly understated coverages on a home insurance policy (water back-up coverage being the other).

If you’d like to review the amount of coverage your home insurance policy provides for your home and personal property, please let us know.  We’re happy to discuss the specifics of your policy in more detail. 

This article was written by Derek Boer.  Please email Derek with questions or comments at derek.boer@boerinsurance.com.

What Does "Apples to Apples" Mean in Insurance?

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As convenient as it may be to compare products and services on an “apples to apples” basis, comparing apples to apples in the insurance industry is impossible.  Why?  Three principal reasons are:

1)  Different language within each policy.  Your policy “declarations,” which contain information like name, address, coverages, deductibles, premiums, etc., are followed by a legal policy that is generally 30+ pages long.  The language in this policy is what determines how those coverages shown on the declarations actually apply when you need to use your insurance.  Very few insurance companies use the exact same language in their insurance policies.  Instead, each insurance company makes their own modifications to policy language based on their desire to provide (or restrict) coverage in certain areas.  Each insurance policy is a legal contract that is interpreted based on the policy language, so small differences in policy language between insurance companies can have a large impact on the usefulness of an insurance policy when a claim needs to be filed.

2)  Claim processes and procedures.  Even with the exact same coverages and identical policy language, the claim experience from one insurance company to another will vary greatly.  This depends highly upon the culture of the insurance company that trains and employs the claim representatives.  Each claim representative is trained extensively by the insurance company on how to pay (or not pay) claims.  Some companies have a reputation of paying claims fairly and quickly, whereas others have a reputation for fighting claims and dragging the process out for months.

3)  Different methods of valuing property.  Have you ever haggled over the price of a used car?  Each insurance company uses their discretion when settling claims.  This often yields claim payments for the same damaged property that are thousands of dollars different between insurance companies.    

For these reasons, we are intentionally selective with the insurance companies we represent.  We’ve been around long enough (100 years!) to know that insurance is not a commodity and, although it would be convenient, can’t be compared on an apples to apples basis.

This article was written by Brian Boer.  Email Brian with questions or comments at brian.boer@boerinsurance.com.

The Three L's for Millennials

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Millennials face many changes as they move away from home, one of which is finding their own insurance.  Once millennials move out of their parents’ home, they are no longer eligible to be insured on their parents’ insurance policies because they do not meet the definition of “resident relative.”  We think the following three topics are critical for millennials to consider as they start planning their own finances, including their insurance protection.

1)      Liability, liability, liability.  This is just as important to insurance as “location, location, location” is to real estate.  Millennials may not have accumulated significant wealth yet, but they often have substantial future earning potential.  These future earnings can be garnished as part of the settlement if a court awards a lawsuit judgement that exceeds the liability coverage limit on a millennial’s insurance policy.  Instead of risking their future earnings, millennials should simply carry higher liability coverage limits on their insurance policies.  The cost is often minimal. 

2)      Life Insurance.  Your health is what truly buys the policy; your money just pays for it.  Millennials may not have a large budget for life insurance, but they generally have an asset much more valuable than money: health.  Just ask a 40 or 50 year old that needs a new life insurance policy but can’t qualify for it because of a medical condition that developed later in life.  Millennials should apply for life insurance while they qualify for the best rates available.  It will only become more expensive to buy and more difficult to qualify for as millennials age.  

3)      Long-term perspective.  Although millennials spend significant time doing independent research online, studies show that they value the advice of an expert more than any other generation.  Millennials should find an insurance agent that will be around for another twenty or thirty years to advise them as their financial position and the insurance products protecting it change. 

This article was written by Brian Boer.  Email Brian with questions or comments at brian.boer@boerinsurance.com.

Why Might Not At-Fault Claims Impact My Premium?

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During the winter holidays, most of us spent time surrounded by family and friends.  I spent Thanksgiving in Midland, MI at my grandparents’ house.  My 87 year-old grandpa, God bless him, backed into my wife’s Jeep that was parked in their driveway.  In a voice that was indistinguishably on the brink of laughing or crying, my grandpa told my wife Paige that he’ll be getting her a new bumper for Christmas.  Paige, yet again proving she’s more forgiving than I am, calmly told my grandpa not to worry about it.  “We shouldn’t have parked there” she explained to him.  Regardless of the fact that in this specific scenario my wife’s Jeep would be repaired by my grandpa’s insurance company (click here to read Brian Boer’s article about no-fault insurance), this occurrence is just one example of why not-at-fault claims may have an impact on your premium.

As mentioned above, where you park has a significant impact on your likelihood of submitting a not-at-fault claim.  For example, the new car “that guy” parked in the very last row at Meijer is much less likely to get hit than the car parked between a beat-up truck and a rust bucket sedan.  Additionally, someone who parks in their garage rather than on the street certainly has reduced their chance of being hit by another driver.  Lastly, we’ve all probably had at least one scare while looking for a spot in a parking ramp downtown Grand Rapids.  Someone who parks there every day for work is more likely to get hit than someone who parks in a small surface lot in Greenville.  Regularly avoiding certain parking spots results in a much lower likelihood of being hit.

Another reason not-at-fault claims may have a premium impact is to better price for your specific driving characteristics and the routes you’re most likely to drive.  Someone who brakes late and hard is more likely to be rear-ended (which is usually deemed not-at-fault) than someone who gradually brakes to a stop.  Additionally, someone who tries to sneak by a car that’s beginning to back out of a parking spot is more likely to be backed into (which, again, is usually deemed not-at-fault) than someone who patiently waits for them to pull out.  We all probably know someone who reminds us that they’ve never been in an accident.  Is it just dumb luck or is that person more attentive and cautious than the average driver?  Most likely it’s the latter.  

In regard to routes driven, insurance companies certainly rate based on zip codes but don’t have the ability yet to rate for a driver’s most common route within that zip code (even if they did, there are some serious privacy issues with this).  For example, someone who courageously navigates the Fuller/Lake Drive intersection on a regular basis is at a higher risk of getting in an accident than someone who spends most of their time driving the residential streets of East Grand Rapids.  For this reason, a not-at-fault accident is deemed a reasonable indicator of how hazardous an insured’s normal driving route is.

Lastly, rating for not-at-fault claims moderates the cost of insurance for society as a whole.  Most people are hesitant to submit an at-fault claim for less than $2,000 of damage, and for good reason.  First, the claim settlement would be subject to their deductible (usually $500 or $1,000) and second, they will have an at-fault accident on their driving record.  If not-at-fault claims had no impact on insurance rates, people would submit claims for amounts as little as $10.  The “unseen” costs of settling a $2,000 claim and a $200 claim are nearly identical.  The claim representative must communicate with the client and the agent, review and approve the repairs, coordinate with the body shop, etc. regardless of the size of the claim.  Therefore, rating for not-at-fault claims discourages people from submitting claims that are better paid out of pocket.

These risks (where you park, how and where you drive, and your inclination to submit small claims) are nearly impossible to rate for using “pre-accident” criteria such as an MVR, age of driver, credit score, etc.  Therefore, insurance companies use not-at-fault accidents to more accurately price the probability of paying a claim on the policy.  

This article was written by Derek Boer.  Email questions or comments to Derek at derek.boer@boerinsurance.com

MythBusters: The cost of my auto insurance should decrease as my car ages

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Okay, so this article may not be as exciting as the TV show but it is certainly more relevant than the myths busted or confirmed (with exception of the episode that confirms you can actually slap sense into someone – click here for proof).

A common insurance myth is that, over time, auto insurance rates should decrease along with the value of the vehicle.  This myth, despite making sense on its face, is busted by looking at a few simple facts.

First, an auto policy provides much more than just physical damage coverage for a vehicle.  In fact, on the average auto policy, only 53% of the total premium is related to physical damage coverage.  The remaining 47% is made up of liability coverages, medical coverage, wage loss coverage, Michigan Catastrophic Claims Association fees, etc.  Therefore, even if premiums did decrease with the value of the insured vehicle, the decrease would not be nearly as drastic as many people expect.

Secondly, the cost to repair a five year old vehicle is no different than the cost to repair a two year old vehicle.  In fact, it may be slightly more expensive for the older vehicle as replacement parts become less readily available.  But what about instances where the vehicle is totaled?  Won’t the insured receive less of a settlement for the five year old vehicle than the two year old vehicle?  Yes, they will.  However, according to the Insurance Information Institute, the average physical damage claim results in payment of just $3,160.  This amount of damage will not total many cars and is consistent with our Agency’s estimate that less than 5% of physical damage claims result in the vehicle being a total loss.  Therefore, the fact that an insured will receive a lesser settlement for an older vehicle in the event of a total loss is not heavily factored into the cost of auto insurance.

Lastly, the cost of health care, which affects an auto policy’s premium for liability coverage (for injuries you cause to others) and medical coverage (for injuries you sustain), has increased well beyond inflation.  According to the Insurance Information Institute, the general cost of living increased by 17.6% from 2006-2015.  Over that same time span, the costs of medical care and hospital services increased by 32.9% and 68.6%, respectively.  Michigan auto policies provide unlimited medical benefits, so these increases have a substantial impact on the premium.

Michigan auto insurance often gets a bad rap for being expensive.  While I can’t disagree, it’s important to remember that an insurance policy is strictly a legal promise to pay for certain costs.  In the case of auto insurance, most of those costs are increasing beyond inflation.

This article was written by Derek Boer.  Please email Derek with questions or comments at derek.boer@boerinsurance.com.

Is Juggling Two Mortgages the Scariest Part?

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The West Michigan real estate market is one of the hottest in the country.  Oftentimes, sellers are receiving multiple offers the day their house is listed.  The result?  Offers contingent on the sale of a current home are often deemed uncompetitive.  Therefore, some buyers are purchasing a new house and renting their old one to help cover both mortgages.  On paper, it often makes sense.  But, as usual, there is more to consider.

There are two common ways to insure a house – a homeowners policy and a dwelling policy.  Most people insure their house on a homeowners policy – it generally provides better coverage and is more affordable.  So why would anyone use a dwelling policy?

The kicker is in the details of the homeowners policy language.  To be eligible for a homeowners policy, a house must be occupied by its owner.  Therefore, the family that rents out their old house to help juggle two mortgages can no longer insure that rented house with a homeowners policy.  Their only option is to use a dwelling policy.

A dwelling policy, although similar to a homeowners policy, tends to be more expensive.  Why?  Think back to that house you rented in college with your friends.  Yikes.  Now think of the home you own and live in with your family.  Much better, right?  Insurance companies aren’t oblivious to the fact that people take better care of things they own rather than rent.  Claim history proves that an owner-occupied house is less susceptible to losses than a house occupied by renters.  So while crunching the numbers to decide whether it makes sense to own both houses, don’t forget to touch base with us about options for insuring your house that is (or may become) a rental property.

This article was written by Derek Boer.  Please send comments or questions to Derek at derek.boer@boerinsurance.com.

Your Holiday Wish List: Is Your Gift Properly Insured?

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With Halloween still fresh in many people’s minds, I’m sure a few parents can remember their child’s face when, after getting all dressed up and braving the rainy weather, the lady that answered the customary “trick or treat” next door reached into a big bag of candy and deposited one butterscotch Werther’s into their child’s candy pail.  As much as I appreciate a Werther’s, it’s often disappointing to a child who, in this day and age, is expecting a fun size Snickers bar at a minimum.  This is how some people feel when they realize after a loss that every homeowner’s policy has limits for certain items, such as jewelry and firearms.  Getting paid $1,000 by the insurance company for a ring worth $5,000 can feel a lot like getting a Werther’s when you were expecting a Snickers (it’s actually much worse – but don’t try to explain that to a 5 year old).

With Black Friday deals and Christmas right around the corner, it’s important to understand how your homeowner’s policy covers two of the most popular gifts for Michiganders – jewelry and firearms.  In general, a standard homeowner’s policy covers these items for fire, explosion, vandalism, theft, and other perils listed in the policy.  However, it does not provide coverage for “OOPS!” actions such as dropping your firearm in the lake, losing earrings on the beach, or dropping a ring down the drain.  Additionally, in instances where the homeowner’s policy does cover the loss, there are policy provisions that limit the amount of coverage if the loss is by theft, which is the most common loss for jewelry and firearms.  The coverage limits for stolen jewelry and firearms are generally between $1,000 and $2,000 depending on the item and the insurance company.  On top of coverage limitations, the deductible on your homeowner’s policy applies before the insurance company pays any portion of the loss.

So is that lady sitting in first class rolling the dice with her three carat diamond ring?  Maybe… but probably not.  Jewelry and firearms can be specifically insured on a homeowner’s policy (referred to as “scheduled”) based on the value of the item.  This eliminates the homeowner’s policy limitation for how much the insurance company will pay for the item in the event of theft.  It also broadens coverage to include the “OOPS!” scenarios mentioned above.  Additionally, the homeowner’s policy deductible does not apply, so the insurance company pays for the full value of the item.

All that coverage must come at a cost, right?  Yes, but the coverage is actually quite affordable - especially when facing the risk of losing a $5,000 ring while skiing at Boyne or watching a $3,000 gun sink to the bottom of Higgins Lake.

So ladies, when making your Christmas list, go ahead and ask for that special piece of jewelry you’ve always wanted…just be sure to call us to add it to your homeowners policy.  And gentlemen, don’t forget that firearms can be specifically “scheduled” on your policy as well.

If you have any questions about this coverage or you make any substantial purchases over the holidays, please let us know.  Otherwise, enjoy the holidays and may you and your family stay safe, happy, and healthy.

This article was written by Derek Boer.  Please send comments or questions to Derek at derek.boer@boerinsurance.com. 

What Does "No Fault" Actually Mean?

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You were in a car accident a few weeks ago and the police determined it was your fault.  You reported the accident to your insurance agent and your insurance company has already paid to repair your car.  Just when you thought you had put the accident behind you, you receive a letter from the other driver’s insurance company.  Your heart sinks as you read their request for your insurance information.  You’re confused because, in the back of your mind, you’re cautiously confident that Michigan is a “no-fault” state for auto insurance.  But what does “no-fault” actually mean in Michigan?  And what recourse does the other driver have when you caused the accident?

Let’s keep it simple.  In Michigan, a driver cannot sue you for damage you caused to their vehicle, with a couple of minor exceptions (discussed below).  Each driver is responsible for insuring their vehicle on their own policy for physical damage (commonly referred to as comprehensive and collision coverages), whether caused by themselves or other drivers, if they choose to do so.  Therefore, regardless of whether another driver side swipes us at an intersection or we steer ourselves into a guard rail, we rely on our own insurance policy to pay for the damage to our vehicle.  Irrespective of who was at-fault in the accident, each driver goes back to their own insurance policy to claim the damage to their vehicle (hence the phrase “no-fault”).

There is, however, an exception to the no-fault rule.  The exception is referred to as “mini-tort,” which allows a driver to sue the at-fault driver for damage to their vehicle that is not covered by their own collision insurance.  The amount that can be recovered in this way is limited to $1,000.  This is generally used to reimburse the not at-fault driver for the collision deductible they paid on their own policy or to help cover their out-of-pocket costs to repair their vehicle if they didn’t carry collision coverage. 

Looking back to our opening example, the “love letter” you received from the other driver’s insurance company is generally seeking to recover the collision deductible that the other (not at-fault) driver paid on their insurance policy.  So did this accident just become up to $1,000 more expensive for you?  Probably not.  Most insurance policies include an optional coverage called “mini-tort liability,” which will cover your liability to the other driver for their out-of-pocket costs due to damage you caused to their vehicle.  Without this coverage, you would be paying your own deductible and the not at-fault driver’s deductible under the mini-tort exception to the no-fault rule.  Simple, right?  Please call us if you have any questions - we'd be happy to explain how this coverage applies on your policy.   

This article was written by Brian Boer.  Please send comments or questions to Brian at brian.boer@boerinsurance.com.