What is the Purpose of Insurance in Michigan?

Uncertainty is a natural part of life, and insurance acts as a risk mitigation tool. Unforeseen events are bound to happen at any time, and when they happen, they typically incur unplanned expenses. However, with insurance, there is security for uncertainty, and you are assured that in the event of a covered risk, you will receive tangible compensation to prevent financial loss. Insurance manages financial uncertainty and provides a safety net for accidental loss, thereby safeguarding the financial stability of the insured. There are different types of insurance policies available in Michigan that perform specific functions:

Since there are many insurance policies in the state, it is vital to contact a Michigan-licensed insurance agent before purchasing insurance. After assessing your needs, the agent will help determine the right insurance coverage for you.

Why Do We Have Insurance in Michigan?

We have insurance in Michigan because unfortunate events are bound to happen, and they can come as accidents, sickness, disasters, theft, death, etc. Without insurance, these events may badly affect the victim’s finances and even leave them bankrupt in extreme situations. Insurance exists in Michigan to provide financial security to state residents so that their finances will not have to suffer when unforeseen events occur. Michigan is home to over 10,050,800 persons, and each person needs insurance to safeguard their finances and investments.

Health Insurance

Health insurance exists in Michigan to make access to health care easier for residents. The rate of Michigan residents without health insurance is 7.8%, or 790,000 individuals. Over 55% of Michigan uninsured adults report that getting medical care without health insurance is difficult. In addition, over half of uninsured adults in Michigan have experienced being sick but unable to seek medical care because of the cost. Over one-third of uninsured adults have amassed huge medical bills they are currently struggling to pay off. All these can be avoided with health insurance. In 2020, Michigan’s leading causes of death were heart disease, cancer, covid-19, accidents, stroke, chronic lower respiratory diseases, Alzheimer’s disease, diabetes, kidney disease, and influenza/pneumonia. Health insurance allows the residents to plan how they will pay for the expected medical treatments and saves them from dealing with unexpected large medical payments caused by unexpected illnesses as well. It also provides them access to good quality health care without breaking their savings or selling off their investments.

Auto Insurance

Based on Michigan law, every registered vehicle owner in the state must purchase automobile insurance to protect motorists from financial losses in the event of accidents or auto theft. The state requires every car owner or driver to possess no-fault automobile insurance. The compulsory coverages are Personal Injury Protection (PIP), Property Protection Insurance (PPI), and Residual Liability Insurance — Bodily Injury and Property Damage (BI/PD). Not having auto insurance is a punishable offense in the state, which attracts a fine of up to $500, a jail term for up to one year, or both. According to the US Federal Highway Administration, Michigan has over 8.4 million registered private and publicly owned motor vehicles, all of which are prone to auto crashes and other unfortunate events like theft, disasters, riots, etc.

Residential Insurance

Michigan has about 4.6 million housing units, including private and rented homes. These housing units include single-family homes, multiple dwelling units, condominiums, manufactured homes, townhomes, semi-detached homes, etc. Each housing unit needs residential insurance to protect the home structure and the occupant’s personal property. Depending on the building type and individual’s ownership status, there are different types of residential insurance in Michigan. Out of all of the housing units in Michigan, around 71.7% are owner-occupied.

Commercial Insurance

There are over 1 million businesses operating in Michigan, employing over 4.8 million residents. Without commercial insurance, these businesses may suffer financial crises due to events like cybercrime, data breaches, property damages, job-related injuries, liability claims, etc. Hence, businesses in Michigan need commercial insurance to keep them running smoothly, even when unforeseen events occur.

Life Insurance

47% of American adults do not have life insurance. In Michigan, this translates to over 3.4 million adults, with over 800,000 of them - seniors. This means that when these persons die, their dependents may struggle financially for some time, especially if the deceased was the breadwinner of their family. However, life insurance guarantees a substantial payout to the insured’s dependents after the insured’s death to meet the beneficiaries’ basic needs. The amount of the payout received is determined by the insured’s agreement with their insurer. Michigan dependents make up 35% of the state’s population; hence, getting life insurance to protect their interests is necessary. Besides the death benefit, permanent life insurance offers many living benefits which can help you finance your retirement and to even offset the medical bills.

Disaster Insurance

Michigan experiences severe storms, flooding, and tornadoes. Other prevalent disasters in the state are wildfires, hailstorms, thunderstorms, extreme heat, winter weather, and earthquakes. The purpose of disaster insurance is to help protect against financial losses caused by natural disasters.

Michigan-licensed insurance agents are available to provide the guidance you need when you are looking to purchase an insurance policy. They can help you get the right coverage that fits your needs.

What is Insured?

What is insured is the subject of the insurance policy, which is determined by the type of policy. For instance, in automobile insurance, what is insured is the vehicle for which the policy was purchased. Likewise, the insured in commercial insurance is the business for which the policy was purchased. Consult with a Michigan-licensed insurance agent who can help you pick the best policy based on your current situation and needs.

What is an Insurer?

Also referred to as an insurance provider or insurance company, an insurer is an entity that is responsible for providing individuals and corporate bodies with financial coverage in the event of covered risks. The Department of Insurance and Financial Services (DIFS) regulates these bodies in Michigan. Some DIFS-regulated insurance entities in Michigan are:

• Insurance companies in the state
• Fraternal Entities
• Health Maintenance Organizations (HMOs)
• Health Entities
• Life Insurance Entities
• Legislatively Created Entities
• Property Insurance Entities
• Property and Casualty Entities (Property, Homeowners, and Automobile)
• Surplus Lines Entities and Title Entities

What is an Insured?

An insured is the subject of an insurance policy, which refers to the person or business that the policy covers. There are two main distinctions:

• In property insurance, the insured is the entity that receives the benefits of insurance coverage, which are mostly claim payouts in the event of covered losses. As long as the insured pays their premiums regularly, the insurer remains obligated to make claim payouts to them when they suffer a loss due to a covered risk. However, an insured will be required to file a claim with evidence to substantiate the claim.
• In life insurance, the insured is the person whose life is insured. Once the insured dies, the insurer pays the benefits of the policy to the beneficiary.

What is an Insurance Policy?

An insurance policy is a legal document detailing the terms and conditions of an insurance contract between the insurer and the policyholder (the insured). An insurance policy usually contains the policy declarations, insuring agreements, definitions, exclusions, and conditions. It is issued when the insured makes an initial payment, known as the premium, and it serves as an agreement that requires an insurer to make claims payouts to the insured in the event of a covered loss within the policy’s limits.

What Does an Insurance Policy Consist of in Michigan?

Typically, an insurance policy in Michigan consists of the following:

• Declaration page: This is normally the first section of an insurance policy that appears on the first page. This page comprises the insured’s relevant personal details and a description of the insured property or whatever is being insured. It also includes the policy’s premium, coverage type, coverage limits, deductibles, discounts (if any), and endorsements. Where applicable, a list of insurance policy forms and endorsements is included.
• The Insuring Agreement: This page follows the declaration page, and it comprises a summary of the insured’s coverage, which explains, in detail, the types of perils covered or causes of loss. It details the insurer’s role in the event of a covered peril if the insured keeps up with premium payments, such as paying incurred costs of property damage, bodily injuries, or liability lawsuits. It also provides instructions on filing claims. Insuring agreements usually have either “named perils” or “all-risk perils” policies, depending on the insured’s agreement with their insurer. A “named perils” policy specifies the perils that the policy covers, which means that perils that are not specified are not covered. On the other hand, the “all-risk” policy covers losses caused by any peril, except if specific perils are excluded.
• The Exclusions: This is the next section after Insuring Agreement, and it includes the perils, losses, and items that the policy does not cover. For instance, residential and business property insurance does not cover earthquakes and floods. While auto insurance does not cover car maintenance or wear and tear, homeowners insurance policies do not cover pet injury; which is covered by pet insurance. Life insurance does not cover suicide during the first 2 years of the policy.
• The Conditions: In the conditions section, the insured outlines the policy provisions that the insured must fulfill in order to receive claims payouts in the event of a covered peril. So if an insured does not fulfill the specified conditions, they may lose coverage, and the insurer could deny their claim. An example of a condition on a homeowners insurance coverage could be having fire alarms within the insured property in order to alert people around when a fire occurs. If a fire occurs but the insured property does not have fire alarms, it is enough ground for the insurance company to deny the claim. Some other conditions are regular premium payment, cancellation provision, nonrenewal, and subrogation rights. It is vital to ensure you fulfill all the conditions of your insurance policy.
• Definitions: This section includes the definitions of relevant words used in the policy and simplifies their meanings, thereby avoiding ambiguity that could work against the insurer in a court of law. Defined terms are usually listed throughout the policy with special formattings, such as boldface font, italics, and quotations, which indicate that they have special definitions.
• Endorsements: The endorsement section, also known as riders, adds, deletes, excludes, or changes the original insurance coverage. An insured can purchase an endorsement/rider to increase the standard coverage limits of a policy. Adjustments made during policy renewal, like policy language and coverage are listed on the endorsement page where the insurer talks about these changes.

You can contact a Michigan-licensed insurance agent to get answers to all your insurance questions pertaining to what an insurance policy covers.

What is Insurance Coverage?

Insurance coverage is the total sum of liabilities, risks, and possible losses that an insurance policy offers financial security against for the insured, their dependents/beneficiaries, properties, or business. Insurance coverage involves financial compensation to prevent losses caused by covered perils, such as accidents, illness, disabilities, natural disasters, theft, vandalism, and liability claims. Generally, the policy type determines what will fall under the insurance coverage. For instance, a comprehensive auto insurance policy includes coverage for theft, natural disasters, fire, vandalism, and any other accidental damage to the insured car, aside from a collision. To activate insurance coverage, the insured is required to pay an insurance premium. This premium is determined by the insured’s age, location, lifestyle, health status, etc. However, every insurance coverage has specific factors that are examined before premiums are decided.

What is Insurance Rate?

An insurance rate is the cost for each insurance unit multiplied by an exposure unit to determine an insurance premium. In simpler terms, it is the amount an insurance company charges the insured for insurance coverage, which covers losses and policy administration expenses, and provides profit to the insurer. Although used interchangeably, insurance rates and premiums are not the same. Contrary to an insurance rate, a premium is the rate multiplied by the number of units the insured buys:

Insurance Premium = Rate × Number of Exposure Units Purchased

What is an Insurance Quote?

An insurance quote is an estimate of the cost of insurance coverage that an insurance company will charge an entity that wants to purchase insurance. Before an insurance company draws up a quote, certain factors are considered, depending on the type of insurance. For instance, for a homeowners insurance quote, the insurer will consider factors like the building’s zip code, structure type, and rebuild value. Insurance quotes vary by insurer, so it is necessary to compare quotes before settling for one. While you can compare insurance quotes online for accuracy and ease, it is best to consult a Michigan-licensed insurance agent to get multiple quotes tailored to your needs. Insurance agents conduct these services free of charge, and you’ll be confident that whatever quote you settle for will be the best one that is affordable and suits every one of your needs.

What is a Discount in Insurance?

Generally, a discount is a reduction in the standard price of a thing, which could be a product or service. An insurance discount usually comes with a percentage decrease in price, which can be as much as 20%. Insurance discounts are not just randomly given. Certain factors determine whether you will get a discount, and your insurance company determines the discount rate.

Some common insurance discounts in Michigan:

• Bundling / Multi policy discount: You may get a discount for bundling two or more policies together from the same insurers. For instance, your insurer can offer you a discount of up to 10% or more if you bundle your automobile insurance and home insurance policies. Likewise, you could insure the multiple vehicles in your household under the same insurer to get you a multi-car discount.
• Loyalty discount: Insurance companies typically give discounts for sticking with them for many years, especially if you have only had a few or no claims during that period.
• Payment discount: Some insurance companies recommend certain payment options or modes of payment that work best for them. If you use any of these, you stand a good chance of getting a discount. For more information on this, speak with the state-licensed insurance agent representing your insurer.

What is Premium Discount

Premium discount is the amount of money an insurer deducts from an insured’s premium when they meet certain requirements like paying premiums upfront.

What is a Discount Rate

A discount rate is the interest rate that an insurance company uses to calculate the current value of future cash flows in a discounted cash flow (DCF) analysis. A DCF analysis can be used to predict whether the future cash flows from a project or investment will be worth more than the capital outlay required to finance the project or investment at the present time.

Why Do You Need Insurance in Michigan?

Everyone needs insurance in Michigan to protect their finances and have cover for unforeseen events, so even when a covered peril occurs, their finances will not have to suffer beyond the planned out-of-pocket costs. The need for insurance depends on the purpose an individual wants to achieve and what insurance policies the state mandates. Some policies are required by law, e.g., automobile insurance is required by Section 500.3101 of the Insurance Code/mileg.aspx?page=getobject&objectname=mcl-500-3101), and workers compensation is required by the Worker’s Disability Compensation Act of 1969. Conversely, most others are not mandated by law, but they are considered very important, e.g., homeowners coverage. Health insurance is one of Michigan’s most important health insurance policies that is not mandated to have. Healthcare expenses can be quite expensive, and if one has to pay for most treatments out of pocket, their health and finances will most likely suffer.

Some of the top reasons you need insurance in Michigan are:

Is Insurance Really Necessary?

Yes, insurance is necessary because it provides a safety net for the insured in the event of planned or unforeseen events. This ensures that insureds do not have to worry about losing their properties to insurable risks or even their lives due to high medical costs or lack of access to proper medical care. The different types of insurance policies in Michigan include:

HEALTH INSURANCE

Health insurance in Michigan was designed to provide unrestricted access to healthcare and make it affordable for every resident. Between 2016 and 2020, 10.2% of Michigan’s population under 65 years old was reported to be living with disabilities. Managing disabilities may be financially draining without health insurance. Likewise, some of the top causes of death in the state are heart disease, cancer, accidents, stroke, chronic lower respiratory diseases, Alzheimer’s disease, diabetes, kidney disease, and influenza/pneumonia. Some of the persons that died due to any of the aforementioned diseases may have lived if they had access to quality healthcare at the early stage of the sickness, which is part of what health insurance provides. While there are private health insurance plans in Michigan, there are also government-sponsored programs. The state spends heavily on such health programs; for instance, Michigan spent $29.8 billion on health and human services in the fiscal year 2021. The table below shows the common health insurance plans in Michigan:

There are several health insurance options to choose from in Michigan. Therefore, it is advisable to discuss your health insurance needs with a licensed health insurance agent who can help you determine the best health insurance plan for you based on your current health status and risk management needs.

LIFE INSURANCE

On average, 321 residents died daily in Michigan in 2020. Most of these deaths were unexpected, and even worse, some of the people who died were the breadwinners of their families. This automatically means their dependents will face two tragedies: their loved one’s death and an impending financial burden. Life insurance helps ensure that even after an insured person’s death, their dependents (beneficiaries) will not have to suffer financially. The insured’s beneficiary(s) can file a claim to receive the life insurance death benefits. An insured person chooses their death beneficiary when they purchase their life insurance policy. Life insurance can be purchased as an individual policy or provided by your employer as a group life policy. Getting life insurance early enough is important because the younger and healthier you are, the lower the cost of your life insurance. There are four main types of life insurance policies in Michigan:

• Term life insurance
• Whole life insurance
• Universal life insurance
• Variable life insurance

Term life insurance

Term life insurance provides coverage that is only valid for a limited number of years, known as the policy period/term, typically between 5 and 30 years. In term life insurance, beneficiaries only receive a payout if the insured person dies within the policy’s term. Term life insurance policies are generally inexpensive compared to permanent life insurance policies that remain active until the insured dies, as long as they continue to pay premiums regularly. Although temporary life insurance runs for a limited period, some term life policies are renewable after the first policy term expires and the insured is still alive. However, the insured may have to pay higher premiums after every renewal because their health status may have changed over time.

Whole life insurance

Whole life insurance provides lifetime coverage if premiums are duly paid. It has a cash value element, which can serve as living benefits to the insured and also pays out death benefits to the insured’s beneficiaries at their demise. It typically offers a guaranteed death benefit, level premiums, and a cash value account. Whole life insurance may permit tax-advantaged cash value use, and the death benefit payout after the insured's death is not taxed.

Universal life insurance

Universal life insurance runs through the insured’s lifetime, provided they regularly pay premiums. Unlike whole life insurance, it is not guaranteed that premiums will remain the same amount. It offers living benefits to the insured when they’re alive, and to the beneficiaries after they die. The cash value component of the universal life policy earns interest at current market rates. The gains are kept, while the possible losses are limited to the account balance “floor”, which gets reset every year or two, to account for the received gains - to guarantee the safety of the investments.

Variable life insurance

This permanent life insurance plan offers lifetime coverage if premiums are paid regularly. It provides flexibility regarding premium payments, savings, and death benefits. In variable life insurance, the insurance divides the insured’s premium into two parts. One part is the insurance cost, while the other is invested into sub-accounts selected by the policyholder. The cash values and death benefits are not fixed; they are instead subject to the performance of the underlying investment options. (Note: While variable life insurance is an insurance product, it is also treated as a security. Since the cash value account investment risk is entirely on the insured account holder, Michigan insurance agents offering Variable policies must be also licensed by FINRA).

Before purchasing a life insurance policy, it is necessary to consult with a Michigan-licensed insurance agent to discuss your needs and expectations. They will help you weigh your options and identify what plan would work best for you.

PRIVATE PROPERTY INSURANCE

Private property insurance offers coverage for the insured’s personal properties. Private property insurance is not a one-size-fits-all form of coverage so each property insurance policy is designed to cover specific types of property. For instance, auto insurance covers vehicles, and homeowners insurance covers self-owned homes. The common types of property insurance policies in Michigan are automobile insurance and residential property insurance (homeowners, condo, landlords, mobile homes, and renters insurance). Private property insurance covers the cost of repairing or replacing insured’s personal properties when damaged by covered perils like fire, hail, storm, and tornadoes. All private property insurance policies are important. However, some are elective and not required by the law, while others are required. For instance, Michigan requires all vehicle owners in the state to have auto insurance.

Residential Insurance

Residential insurance is a compound term for homeowners, condo, landlords, mobile homes, and renters insurance. It typically covers damage to an insured’s building and personal belongings within the building, such as furniture, clothes, gadgets, and other gadgets.

• Homeowners insurance: Michigan has over 4.5 million housing units. Some counties have more homeowners than others. For instance, in Benzie County, over 90% of residences have live-in owners. All homeowners need homeowners insurance policies to protect their homes, personal properties, and other structures within their insured property (e.g., garages, fences, gates). You can get a homeowners insurance policy from a homeowners insurance company to prevent financial loss due to damage caused by a covered loss like fire, tornadoes, theft, windstorms, burglary, etc. It also provides dwelling coverage and coverage for other structures within the insured property. It covers liability claims and additional living expenses if the insured has to temporarily leave their home due to a covered peril.

  Most homeowners insurance policies do not cover natural disasters (like floods and earthquakes), wear and tear, and sewer backup. However, a policyholder can get supplemental disaster insurance policies for coverage against the disasters that their properties are prone to. For instance, homeowners in Detroit, Warren, and Grand Rapids are at serious risk of flooding; hence, they need to purchase a separate flood insurance policy to cover damages caused by floods. You can contact a Michigan-licensed agent to ask homeowners insurance questions and determine how much home insurance policy coverage you need.

• Condo insurance: Condo insurance is not mandated in Michigan, but it is recommended for persons who reside in condo units. Condo insurance is designed to protect against losses and repair costs for condo units. It covers the insured’s condo unit and their personal property within the unit if it is stolen or damaged by covered perils like fire, windstorm, hurricanes, hail, vandalism, smoke, riot, and accidental or sudden water damage. However, standard condo insurance in Michigan does not cover the condo building itself, flooding, earthquakes, wear and tear, and freezing pipes.

• Renters insurance: There are over 1.3 million rental residential properties in Michigan, and each one needs renters insurance. Although the law does not require renters to purchase renters insurance, it is necessary to have it to protect their rented housing units and personal property from covered perils. Some landlords even require that their tenants purchase renters insurance as a prerequisite for living in their buildings. Generally, landlords have landlords insurance on their properties, but it does not cover damages to their tenants personal possessions. Renters insurance covers:

  • Theft or damage to your personal property
  • Personal liability damages
  • Emergency medical payments for third party
  • Loss of use or additional living expenses if you need temporary accommodation due to damages to your rented home caused by any covered peril.

  Renters insurance provides personal property coverage but does not cover losses caused by wear and tear, war, floods, earthquakes, nuclear hazards, and intentional acts by tenants. You will have to get separate policies to cover the excluded perils. For instance, you can purchase earthquake insurance to cover earthquake damage, especially if you live in a susceptible area.

• Landlord insurance: Michigan is home to an extensive rental unit market, which needs insurance. Regular homeowners policy is not enough. While owning a rental property can be a great investment that nearly guarantees a regular income, if you fail to protect your investment, you may lose the property faster than you imagined. Therefore, it is a good idea to purchase adequate landlord insurance to ensure your property is covered and protected from perils. Landlords insurance also covers the building of the rental unit and the items used to service the rental home, like backup generators, toolboxes, lawnmowers, and snow blowers. It also covers liability claims due to personal injury, wrongful entry or eviction, and other non-bodily injury claims like libel and slander. However, it does not cover damages to the tenant’s personal belongings or damages resulting from natural disasters, war, and nuclear hazards.

The residential property insurance policies above cater to all residents of Michigan (renters or landlords), regardless of the type of property they reside in. They can be purchased through Michigan-licensed residential insurance agents, who can help determine what policies to purchase and how much coverage is needed based on a person’s home structure and needs. In addition, an insurance agent will help you compare home quotes from multiple insurers home insurance companies and ensure you settle for an affordable and comprehensive policy.

Auto Insurance

Private auto insurance covers motorized vehicles used for private purposes. In 2020, there were 8.4 million registered private and publicly owned motor vehicles in Michigan, each needing auto insurance to protect against losses caused by collisions, theft, disasters, vandalism, and liability claims. Road accidents in Michigan frequently result in casualties or a person’s car being totaled. This can be financially destabilizing if none of the parties involved has automobile insurance. According to the Michigan State Police Criminal Justice Information Center, 282,640 auto crashes occurred in the state in 2021, which was a 15% increase from 2020. Most of the auto crashes were single motor vehicles, which amounted to 102,735, while fatal traffic crashes were also mainly single motor vehicles and amounted to 532. Asides from getting hurt and being solely responsible for your medical treatment after an auto crash, you can be sued and held personally liable. Besides, Michigan requires all vehicles in the state to have no-fault auto insurance. The three auto insurance coverages that are mandated by Michigan law are:

• Personal Injury Protection (PIP). This pays for the insured’s medical bills (with no maximum limit) if they are hurt in an automobile accident. It pays the income the insured may lose (up to three years) due to the effect of the accident on their health. If the insured dies in the accident, their PIP policy will pay their spouse and dependents monthly allowances for up to three years, based on what they would have received if the insured was still alive. In Michigan, individuals can bundle their PIP policies with their health or disability insurance policies (except Medicaid, Medicare, or a Medicare Supplemental policy) to reduce their premiums.

• Property Protection Insurance (PPI): This pays as much as $1 million for the damage the insured’s car does to other people’s property, such as buildings, fences, and properly parked vehicles in Michigan. (Note: This coverage works only inside the state of Michigan)

• Residual Liability Insurance — Bodily Injury and Property Damage (BI/PD): Although the no-fault law protects insured persons from being sued due to a road accident, below are cases in which you could be liable and possibly sued in Michigan:

  • If you are involved in an accident in a different state
  • If you cause an accident where the party involved was killed or seriously injured
  • If you are involved in an accident in the state with a non-resident who is an occupant of a motor vehicle not registered in Michigan

  Suppose you are found guilty in any of the above situations. In that case, the residual liability portion of your no-fault policy will cover the incurred costs up to your coverage limit amounts. The minimum required BI/PD policy limits are:

  • Up to $20,000 for the injured person or person killed in the accident.
  • Up to $40,000 per accident if several people are hurt or killed.

  If the court awards an amount above your coverage limit, you would have to pay the amount left after your insurance kicks in. Therefore for better protection, you may buy extra liability insurance. Speak with an agent about umbrella liability coverage.

Other optional automobile insurance policies in Michigan are:

• Comprehensive insurance: covers the theft, damage by a falling object, fire, flood, vandalism, or collision with an animal.
• Collision insurance: covers damage incurred due to collision with another car.
• Uninsured/underinsured motorist coverage: covers you if an uninsured or underinsured motorist hits you or a member of your household. The coverage is usually sold with limits of $20,000 per person and $40,000 per accident (20/40). However, this coverage does not pay for damage to your vehicle.
• Limited property damage or “mini-tort” insurance: It allows you to recover up to $1,000 from the at-fault driver's insurer for your vehicle damage repair costs.

You can purchase multiple auto insurance policies for all the vehicles you purchase from the same company and this may qualify you for a multi policy discount. Speak with your auto insurance agent for details.

Watercraft Insurance

Watercraft insurance includes boat insurance, yacht insurance, and personal watercraft insurance. It protects against financial losses due to physical damages caused by accidents, vandalism, and liability. Michigan is home to over a million boats, second only to California.

Aircraft Insurance

Aircraft insurance covers physical damage caused to an insured aircraft (e.g., an airplane or helicopter) and its passengers on board. It also covers legal fees arising from its use. Aircraft insurance is required in Michigan to protect the aircraft while in the hangar, on the ground, and in the air. Aircraft insurance can be private or commercial. Aircraft are prone to different hazards that require insurance to prevent a massive loss. For instance, on August 16, 1987, Northwest Airlines experienced a serious air disaster that resulted in 156 fatalities in Romulus, Michigan. Generally, aircraft are insured based on an agreed value, and the premiums charged for physical damage to the aircraft are a percentage of the value based on the owner’s Agreement with their insurer.

COMMERCIAL INSURANCE

Commercial insurance caters to all forms of businesses. Businesses are prone to fire hazards, theft, property damage, lawsuits, lost business income, advertising injuries, liability claims from employees and third parties, and more. These perils can cost a business thousands to millions, which in some cases, may cause the business to fold up. For instance, in 2022, Abbott Nutrition in Michigan had to halt the production of Calcilo XD® Infant Formula for several months, following the directive of the US Food and Drug Administration. The temporary shutdown was enforced after several infants became ill due to Cronobacter sakazakii or _Salmonella, _which was discovered after they consumed the infant formula. After investigation, the FDA found unsanitary conditions at an Abbott factory in Sturgis, Michigan. This scandal cost the business a lot of money, especially when it had to shut down temporarily. With proper insurance coverage, if one was in place, Abbott factory’s incurred loss is covered by their policy.

Commercial insurance protects businesses from financial losses caused by covered risks that may occur during the normal course of business. It protects the finances of over 2.6 million business entities registered in the state. Michigan state requires businesses operating on its territory to have certain commercial insurance. For instance, state law requires business owners with employees who work for 35 hours or more for 13 weeks or more to provide worker’s compensation for their employees. No-fault commercial automobile insurance is also required for businesses with vehicles in Michigan.

In 2020, the U.S. Bureau of Labor Statistics reported 131 fatal work injuries in Michigan:

Some other workplace fatalities recorded were aircraft incidents, equipment hazards, different forms of injuries, etc.

Asides from offering financial protection and keeping a business running, commercial insurance helps protect the business’s employees in the event of workplace-related hazards. It also boosts the business’s credibility as clients would rather do business with companies that have financial security in case anything goes wrong.

Commercial insurance in Michigan is broadly divided into four types:

Consult with a Michigan-licensed commercial insurance agent who can assess your business’s risks and determine what policies will adequately provide financial security for your business in the event of a peril and how much coverage is needed.

LIABILITY INSURANCE

Liability insurance provides coverage for the insured against liability claims resulting from bodily injuries to other people or damage to their properties. It generally covers legal costs, repair/replacement costs, and medical bills, depending on the event that occurred if the insured party is found legally liable. For instance, if a guest slips and falls in a person’s house, the liability coverage of their homeowners insurance policy will cover the cost of treating the guest. However, liability insurance does not cover intentional acts. After a liability claim has been investigated, the insurer will most likely make payment to the third-party involved on behalf of the insured party.

Liability insurance is mostly purchased as a part of a larger policy. Most insurance types in Michigan have liability coverage.

Liability insurance coverage is a necessary component of nearly every insurance policy in Michigan. However, you should not just purchase any type of coverage without assessing your liability risks and determining the amount of coverage you need. Contact a Michigan-licensed insurance agent for help with your risk assessment and to determine your coverage type and amount.

DISASTER INSURANCE

Our state is susceptible to multiple natural periodic disasters. They include floods, tornadoes, winter storms, thunderstorms, and other events that can cause severe property damage, injuries, loss of life, economic impacts, and disruption of services. Disaster insurance is a term that refers to all policies that cover specific natural disasters. According to the Michigan Hazard Analysis of 2019, the state was estimated to lose over $100 million yearly due to floods, $19.6 million due to tornadoes, $16.6 million due to hail, and $3.3 million due to snowstorms.

Damages caused by disasters are most times very significant and expensive. Consult with a Michigan-licensed disaster insurance agent to determine the disasters you are prone to, judging by where you reside or own a business. The insurance agent will also give you risk mitigation tips and help you determine the type of disaster insurance policies you need and the amount of coverage to purchase.

The disaster insurance policies in Michigan are:

Flood Insurance

Floods are not uncommon in Michigan. It is one of the natural disasters that residents must prepare for by getting flood insurance, especially if they reside or own businesses in flood-risk areas. About 6% of Michigan’s land is flood-prone, including about 200,000 buildings. Some notable flood events in Michigan are the Grand River Flood in 2013 and the Metro Detroit Flood of 2014. These events usually incur huge expenses and cause financial losses if the affected home or business property is not insured. Typically floods are not covered under standard residential and business property insurance policies, which is why Michigan residents and business owners will have to purchase flood insurance to protect their assets.

In June 2022, Abbott Laboratories, located in Sturgis, Michigan, had to shut down for weeks due to flooding inside the plant, which was caused by a powerful storm that hit the state. This would have caused a major loss of income for the company if it did not have adequate flood insurance. According to the Federal Emergency Management Agency (FEMA), an inch of floodwater can result in damages worth $25,000. Flood insurance only covers damages within the insured property directly caused by flooding. However, it does not cover financial losses caused by business interruption or loss of use. It also does not cover damages caused by earth movement, even if it was caused by a flood. Damages caused by moisture, mildew, or mold that the property owner could have prevented are not covered. Flood insurance can be purchased through the National Flood Insurance Program (NFIP) or private insurers.

Earthquake Insurance

Earthquake insurance is designed to cover damages that occur due to earthquakes. It protects residential and commercial properties from financial losses caused by property and equipment damage. Standard residential and commercial property insurance policies do not cover earthquakes. Hence residents and business owners in earthquake-prone areas are advised to purchase earthquake insurance as a separate policy. On August 10, 1947, Michigan experienced what is believed to be the most intense earthquake ever experienced in the epicenter of the state. It caused building damage in the City of Coldwater, Kalamazoo, and surrounding cities. The magnitude-4.2 earthquake of 2015 is the strongest earthquake recorded in Michigan in the 21st century. It happened on May 2, 2015, when residents across Southern Michigan felt the ground shake and objects move in their homes. However, there were no reports of damage. Earthquake insurance covers direct damage to an insured property resulting from the shaking effect of an earthquake. It does not cover indirect damage, like fire and water damage from burst gas and water pipes; homeowners insurance covers these.

Tornado Insurance

Most residential and business property insurance policies in Michigan include “windstorm coverage” by default. If the property policy specifically excludes tornado coverage, speak with a licensed insurance agent to discuss your options to remain adequately protected. On average, Michigan experiences 15 tornadoes every year.

Wildfire Insurance

Wildfires are covered by standard residential and business property insurance policies. Therefore residents do not have to purchase stand-alone policies for wildfires. Wildfires are quite common in Michigan, as firefighters respond to 10,000 to 12,000 wildfires yearly. 47% of wildfires occurring in the state are from burning yard debris, like trash, grass clippings, and leaves. Wildfires mostly occur during the spring season in Michigan when days are dry and windy, with plenty of dead vegetation left after the snow melts.

Deductible vs. Premium

A deductible is an amount you pay out of pocket in the event of covered losses before your insurance issues a payout. A premium is an amount an insured is required to pay on a periodic basis (typically monthly or annually) to keep their coverage active.

What is a Deductible in Insurance?

A deductible is the specified amount of money you are required to pay out of pocket to cover an insured loss or damage. Generally, most policies, especially property and health insurance policies, have deductibles. Policyholders can set their deductibles as it suits their needs. For instance, some insured may choose high deductibles so that they can pay lesser insurance premiums. However, when a covered loss occurs on a policy with a high deductible, the insured may get little or no cash payouts from their insurer because the deductible may be almost the same amount as the incurred expenses. For instance, if an individual chooses a deductible of $2,000 and incurs a $2,400 damage, they will only receive a $400 payout from their insurer.

A deductible could be an agreed amount, such as $500, $1,000 (which is usually the maximum for auto policies), or any other amount agreed with an insurer. It could also be a percentage of the insured value. For instance, if a policyholder has a 5% deductible on a $1 million property, they will be required to pay the first $50,000 of the damage out of pocket. If a $250,000 damage occurs, this policyholder will be required to pay $50,000 while the insurer pays the remaining $200,000. If the damage is for $60,000, the insurer will pay just $10,000, while the $50,000 will be paid out-of-pocket.

It is very important to know how much you should plan to come up with in case you need to file a claim. In some situations, you must pay the money out of pocket before insurance picks up the rest of the bill, while in others, your deductible gets subtracted from the overall claim payout.

Most typical deductibles in Michigan are:

Auto insurance deductible - $0 (no deductible) - $1,000

Health insurance deductible - $0 - $20,000 (while ACA has an annual federally-regulated cap on deductibles, short term health insurance may offer much higher deductibles on the lowest-cost plans)

Residential insurance deductible - can be a percentage (possibly up to 5% of the insured value) or a fixed amount.

PROs of Deductibles

Deductibles can be beneficial to both the insured and the insurer; some pros of deductibles are:

• It allows insureds to customize how affordable they want their plans by selecting high deductibles to make their plans more affordable.
• It cuts down on small claims since, in some cases, the deductible cost can already cover the cost of the loss. This helps the insured have a better claims history since they will not file small claims. It also increases the profitability of the insurer.
• It is a means of sharing the cost of loss with the insured since they will also have to pay part of the incurred cost.

CONs of Deductibles

While a deductible may benefit both the insured and the insurer; some of its cons are:

• Selecting a high deductible may reduce the premium cost, but it also means that the insured may have to pay a significant amount out-of-pocket in the event of a covered loss.
• Being that most losses are unexpected, a covered loss may occur when the insured is low and cash and if they have a high deductible, they may not be able to afford to file a claim early enough. This may cause the loss to get worse over time.
• Selecting a low deductible may be tricky because if you don't end up filing a claim, you will have paid a higher monthly premium for nothing.

What is a Premium in Michigan Insurance?

In Michigan, a premium is defined as the amount of money you pay for insurance coverage monthly, semi-annually, or annually. Insurers in the state determine the cost of insurance based on factors concerning the insured and what they need the coverage for. Premiums are usually not negotiable in Michigan because they are determined after a detailed analysis by the actuaries the insurance company employs to determine risk levels and premium prices for specific insurance policies.

What is Insurance Premium?

An insurance premium refers to the cost of insurance coverage that an insured entity is required to pay upfront or in installments to keep the insurance coverage active. If the insured fails to pay premiums regularly when due and also within the grace period, their policy will lapse, and they will lose the insurance policy’s benefits.

How is Insurance Premium Determined?

In Michigan, an insurance premium is determined by assessing the risks of the potential policyholder in relation to the coverage type they need and the coverage amount needed. The metrics an insurer uses to measure the potential risk they will incur by insuring a person typically varies by insurance type. Generally, an insurer considers the following:

How Do Deductibles Affect Premiums?

Deductibles have a direct link with the cost of premiums. As a general rule, a higher deductible lowers the premium, and low deductibles raise the premiums. Some insured increase their deductibles to save on their insurance premiums, especially when they are at low risk of being affected by a covered risk.

How Do You Pay Insurance Premiums in Michigan?

In Michigan, you pay insurance premiums in person with a check or electronically, using your credit card. You can also pay your insurance premiums through premium financing, depending on your agreement with your insurer. The available payment options in Michigan are annual, semi-annually, quarterly, or monthly. The payment options you select will determine how often you will be required to make payments. For instance, if you choose a monthly payment option, you will be required to pay your premiums monthly or risk losing coverage benefits. Note that when annual payments are made upfront, they usually result in certain discounts.

Health Insurance

Most health insurance policies require insureds to pay premiums monthly, but you can pay for your health insurance policy quarterly, semi-annually, or annually, depending on your agreement with your insurer and insurance type. The employer typically pays part of the insurance premiums for employer-sponsored health plans, while the employee pays what is left. However, if you are self-employed or a part-time employee, you will need to get your own health plan or get health insurance through your spouse’s plan.

Auto Insurance

Auto insurance payments can be made monthly, quarterly, semi-annually, or annually. However, commercial auto insurance premiums may not be as flexible – business owners may be required to make upfront payments in a lump sum before the policy becomes active. They can use the premium finance option if they cannot afford to pay in full. The premium finance company will pay for the premiums in full, while the insured business will have to repay them in monthly installments. Like any loan, the business will have to pay interest as they repay their loan.

Residential Insurance

Residential insurance premiums can be paid monthly, quarterly, semi-annually, or annually. If you own the home outright, you are most likely paying directly to the insurer. If you have a mortgage, the bank usually takes care of insurance payments, by using the portion of your monthly mortgage payment for it. If you want to pay insurance on your own, it can be done with no cost difference for you. The only difference is that you lose the convenience factor and must track these payments yourself.

Note: If you owe more than 80% on your mortgage, your lender may require you to pay your home insurance premium through escrow, to ensure your payments are made promptly with no lapses in coverage.

Commercial Insurance

A business owner is typically required to pay their commercial insurance policies in full annually. Payments can also be made through premium financing by a third party who will pay the commercial insurance premium in a lump-sum to the insurance company, while the policyholder will be required to repay the premium financing company in agreed upon installments. While most commercial insurance companies require annual payments, some may permit installmental payments – discuss with your insurer to determine what is required.

Life Insurance

Term life insurance payments are generally more flexible than permanent life insurance policies; they can be made monthly, quarterly, semi-annually, or annually. However, for permanent life insurance policies, your insurer may require you to make a lump-sum annual payment. Life insurance premiums can also be paid through premium financing. However, this option is only available to high-net-worth individuals, who can use their personal assets as collateral and finance life insurance with a small down payment.

Disaster Insurance

Disaster insurance premiums can be paid monthly or annually, depending on your agreement with your insurer. However, some disaster insurance companies mandate annual payments. Discuss with your insurer to know the required payment method.