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Is car insurance medical coverage a rip-off?

By Posted : 04/17/2015

Is car insurance medical coverage a rip-off? If you have health insurance, do you need personal injury protection (PIP) or medical payments car insurance coverage, or is it just a waste of money? 

Use our car insurance coverage calculator for a recommendation on whether you should carry med pay. It will automatically take into account if you live in a PIP state. After 6-10 questions, you'll have your med pay and PIP recommendation, as well as a recommendation of what type of car insurance coverage you need.

Most types of car insurance cover your car or pay for the damages you do to others. Liability insurance will never pay your medical bills or for those of your passengers. PIP and medical payments (sometimes called MedPay) do.

The two coverages are similar, but PIP covers lost wages and rehabilitation expenses in addition to medical costs.

Some states require drivers to purchase a minimum amount of this type of medical coverage. You are required to buy personal injury protection in these states: Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon and Utah. Most, but not all, are no-fault states.

Only Maine and New Hampshire require medical payments coverage as part of every insurance policy.

In other states, the coverage is optional. If your state gives you a choice for coverage, you can ultimately decide if the insurance is worthwhile or a waste of money.

If your state requires this coverage, you must decide if you want to purchase the minimum amount required by law or pay for higher levels of coverage.

Because PIP provides an added value it is generally more expensive than medical payments coverage. However, the price difference varies by company and state, says Kevin Lynch, an associate professor of insurance at The American College in Bryn Mawr, Pennsylvania.

Redundant health insurance coverage?

If you already have health insurance, medical payments coverage and the medical coverage portion of PIP may be redundant, says Lynch.

Even so, it could still be a worthwhile purchase, because "your having health insurance is not going to benefit other people in your car if you have an accident," especially if they don't have health insurance, says Lynch. Medical payments coverage can help cover their bills.

In addition, health insurance may not cover all your expenses related to an accident. For example, deductibles under health insurance policies sold through the Affordable Care Act marketplaces often reach $5,000 or more. Medical payments and PIP would help pay that.

PIP also offers benefits beyond simple health coverage. For example, PIP reimburses a percentage of your lost wages, says Lynch.

Short-term and long-term disability policies could help you make up for lost income, but they are taxable benefits and are usually received as less than 100 percent of your normal wages, says Lynch.

"The PIP coverage is a nontaxable payment and would help you in making up for the difference in lost wages," he says.

Lost income, even for just a few weeks, can severely impact people's finances, says Brooks Gregory, a financial adviser with Peachtree Planning in Atlanta.

For that reason, he generally suggests getting the extra insurance. If you can purchase PIP and medical coverage auto insurance inexpensively, it can help protect you in a worst-case scenario, says Gregory.

"It's not the type of coverage that someone needs to get overly excessive with, but for small health claims related to a car accident, it is a great benefit to have," he says.

Increased car insurance premium

Adding higher levels of PIP and medical payments coverage will hike the premiums on your car insurance policy. Coverage amounts typically range from $1,000 up to $10,000, says Lynch.

"Let's say you're an over 25-year-old male driving a relatively new car, and your policy for six months is going to be $600," Lynch says. "Of that $600, you're probably talking about 50 bucks of it having to go to PIP or medical payments coverage."

That $50 could typically get you about $5,000 worth of PIP coverage, or $10,000 worth of medical payments coverage, based on your driving record, says Lynch.

Such a relatively small payment could be a smart investment. According to the Insurance Institute for Highway Safety, the average loss payment for personal injury protection claims in a one-month period was $4,950 (for 2006-08 model passenger cars).

Personal injury protection typically comes with a deductible. You may be able to save money on the premium by selecting a higher deductible.

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