Most of us try to be responsible drivers to help ensure the safety of ourselves and others. However, we all know accidents can happen, and we have insurance to help ease the financial burden of those accidents.

Like most insurances, auto insurance has several components with different coverages that can be confusing. One of the areas that people tend to overlook is medical payments, which is understandable. The coverage is usually set to $1,000 and not discussed as much as the larger bodily injury coverage, which usually ranges from $50,000 to $250,000. Why spend much time vetting the pros and cons of the relatively small medical payments?

Why Medical Payments Matter

Well, understanding the difference between the two coverages will help shed some light on that question. Bodily injury coverage will help pay the medical expenses incurred by others for a collision you are responsible for. On the other hand, medical payments (MedPay) coverage will help pay the medical costs incurred by you or your passengers regardless of who is at fault. This is often referred to as “no fault” coverage.

Now you may begin to see the problem. While it is good to make sure you have coverage for other people’s injuries, you don’t want to rely on another driver having enough coverage to pay for your injuries. Medical payments can help fill that role, which is why we usually recommend clients have at least some coverage.

MedPay and PIP

I’ve only referred to MedPay up to this point, but another similar coverage can be added to your auto insurance: personal injury protection (PIP). Like MedPay, PIP will provide coverage for medical expenses you or your passengers incurred, regardless of who was at fault. Neither of these policies will provide you with any collision coverage; they are geared toward paying for personal medical expenses.

These are both important insurances to have, but it can be hard to decide which is best for you unless you live in a state where one of the coverage types is not offered.

I will delve into the similarities and differences between MedPay and PIP to hopefully educate you on the important distinctions between these coverages and ease the decision-making process.

Coverage Provided by MedPay

MedPay is an optional add-on to your auto insurance policy that will help cover “reasonable” medical expenses incurred by you and your passengers resulting from a car accident on a no-fault basis. Some of these expenses include:

Doctor visits
Hospitalization
Surgeries
Ambulance transportation
Funeral expenses

One key advantage of MedPay is that it can complement your health insurance. MedPay can help cover deductibles and copays, ensuring minimal out-of-pocket expenses. This can be a helpful safety net if you’re concerned about your ability to pay for the costs your health insurance doesn’t cover.

Coverage extends beyond just being in a car. If you get hit while walking down the street or riding your bike, MedPay can also help cover those medical expenses. This coverage should be an even bigger consideration for those who live in a city where walking is common.

MedPay limits are typically between $1,000 and $10,000 per person, so it isn’t a large amount compared to some hospital bills. However, it often costs less than $10 per month, which can be a small price to pay if it helps cover your deductible, which is likely in the thousands.

MedPay is available in most states but required in only New Hampshire and Maine at the time of this writing.

Coverage Provided by PIP

PIP, or personal injury protection, is an add-on to your auto insurance policy that will help provide for a variety of expenses resulting from injuries sustained in a car accident on a no-fault basis. Some of these expenses include:

Medical expenses (doctor visits, hospitals, etc.)
Lost wages
Childcare expenses
Service expenses (i.e., housekeeper)
Funeral expenses

When looking at the list above, you’ll notice that PIP operates like an expanded version of MedPay. It can even pay for expenses incurred as a pedestrian, just like MedPay. However, the trade-off for more coverage on this policy is that it comes with its own deductible. If you incur $10,000 worth of expenses but have a $1,000 deductible, you’ll receive only $9,000 from PIP.

PIP limits are higher than MedPay and can go up to $25,000 in some states. The premiums are also higher, reaching $50 per month for larger policies.

PIP is required in 12 states, which are almost all no-fault states. If you live in one of these states, you will have to at least purchase the state-mandated minimum coverage. This is usually in the $5,000 to $15,000 range, although some states require considerably more coverage. Naturally, New York tops the list at $50,000. Insurance companies offer PIP in only seven states where it isn’t required, including Virginia and Maryland.

Should You Add MedPay and/or PIP to Your Policy?

Now that we’ve learned more about these coverages, we can look at which may be best for you. Even if you live in a state that requires PIP coverage, you still have factors to consider when deciding to get the minimum or purchase more. You should consider:

Health insurance: Are you comfortable covering your deductible? If you have comprehensive health insurance with low deductibles and copays, you may not require MedPay or PIP coverage. However, if you have high deductibles and copays, or if your health insurance does not cover certain treatments or therapies, MedPay can provide valuable supplemental coverage.
Disability insurance: Do you have coverage through your employer or a separate policy? If not, or if your coverage is limited, then PIP could help. While it isn’t a true disability policy, receiving benefits while you recover will ease the financial burden of being unable to work.
Transportation habits: Are you carpooling or walking in traffic-heavy areas often? If so, either coverage would be valuable to cover those situations that basic auto insurance lacks in.
Financial situation: Consider your financial ability to handle unexpected medical expenses or a loss of work. Both coverages act as a safety net to ensure that medical bills and related costs are covered, reducing the financial burden on you and other individuals involved.

Final Thoughts

MedPay and PIP are valuable additions to your auto insurance policy that can help cover medical expenses from car accidents, even if you are the driver at fault. While MedPay supplements your health insurance, PIP offers broader coverage, including lost wages. Both provide benefits for you and your passengers, going beyond the scope of normal bodily injury coverage seen on auto insurance.

Depending on your circumstances, adding MedPay or PIP to your policy can provide an extra layer of security and peace of mind. Carefully evaluate your current insurance coverage, state requirements, and personal needs.

For example, if you have a high-deductible health plan but a great disability policy, then you may opt for MedPay over PIP. It can ease the burden of that deductible while not paying a higher premium for additional, unneeded loss of work coverage.

Consult with your financial advisor and insurance provider to understand the specifics of MedPay and PIP coverage options available to you and what might be the most appropriate for your needs. Remember, adequate insurance coverage can significantly protect yourself and your loved ones during unforeseen circumstances on the road. Our fiduciary Registered Investment Advisor (RIA) firm helps clients select appropriate coverage as part of their overall financial planning.

Discuss your situation with a fee-only financial advisor.

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