Don’t Be Fooled: Avoid “Step-Down” Clauses in Your Car Insurance

Some Michigan car insurance companies have what is called a “Family Step-Down” provision, also known as an “Intra-family” exclusionary clause. Generally, a Step-Down provision applies when one family member pursues a compensation claim against another family member arising out of an automobile crash. The purpose of the Step-Down clause is to reduce the liability coverage to the state-required minimum of $20,000/$40,000 (per person/per accident) if a family member is at fault for a crash and another family member is injured.

An Illustration of a Step-Down Provision

The effect of a Step-Down provision can be shown by the following illustration. Suppose you requested and paid for liability coverage of $1 million on your automobile insurance policy. You were later driving with your wife and two children as passengers. You then ran a red light and caused a crash, and your family members were injured as a result. In this case, because you were at fault, your wife and/or children would be able to make a claim for compensation against the $1 million liability policy limits.

However, if your insurance company has a Step-Down provision, your wife and children would be limited in the claim against your insurance company to $20,000/$40,000. So in situations where someone is seriously injured, the liability coverage becomes wholly inadequate to compensate them for damages such as pain and suffering, mental anguish, decreased enjoyment of life, and excess wage loss (and where there is a wrongful death, damages for loss of love, society, and companionship).

Michigan Insurance Companies and Step-Downs

As seen from the above example, Michigan No-Fault insurance companies that have Step-Down clauses and/or Intra-family exclusions should be avoided. Michigan insurance companies that have included Step-Down provisions in some of their insurance policies include Progressive Insurance, Farm Bureau, Grange Insurance, USAA, and GEICO. 

When last checked, the following Michigan insurance companies did not use Step-Down provisions: Auto Owners/Home Owners, AAA, State Farm, Citizens, Allstate, Liberty Mutual, and Michigan Millers Insurance Company. As insurance companies are constantly changing or attempting to change their policies, you need to check with your insurance agent and/or representative to see if your policy has a Step-Down provision. In order to best protect you and your family, you will want to find an insurance company that does not have these types of clauses. 

For more information on Step-Downs or car insurance in general, please call our office at (734) 761-7282.