The Difference Between PIP and Med-Pay Coverage
June 4, 2011
Personal Injury Protection (PIP) is coverage you purchase with your auto insurance policy that covers medical expenses and lost wages as a result of injuries sustained in a car accident. This coverage is applicable regardless of whose at fault in the accident. Medical Payments coverage (Med-Pay) also provides coverage regardless of whose at fault in the accident. However, Med-Pay only covers medical bills (not lost wages). There are even more important differences between PIP and Med-Pay that every person should be aware of.
PIP is mandated under Texas law. The Texas Insurance Code provides that all policies of automobile insurance issued in Texas must provide for PIP coverage for a minimum of $2,500 per person, unless rejected in writing by the insured. If you choose not to carry PIP coverage, then the insurance company is required to obtain your signed rejection of the PIP coverage. Therefore, if you are in a car accident and have medical bills or lost wages, then you would be entitled to the minimum PIP coverage, even if you were never charged a premium for it, unless you signed a written rejection. In my years of practice, I have had only one occasion where the adjuster could not locate the signed PIP rejection for my client. Likewise, the adjuster was forced to provide my client the state mandated minimum of $2,500 in PIP coverage even though she didn’t pay for it. That is why I always ask the claims adjuster to provide me with a copy of the PIP rejection when I report a car accident claim on behalf of my client. However, insurance companies rarely make this mistake and usually have obtained your written rejection. Most of the time, you unknowingly signed the rejection when you originally took out your policy.
Med-Pay coverage operates differently. Med-Pay is not mandated by Texas law. Additionally, Med-Pay coverage may be issued in any amount: $500, $1,000, $2,000, etc. There is no state mandated minimum. Med-Pay coverage only covers medical bills, while PIP also covers lost wages. However, there is another major difference between PIP and Med-Pay that will escape many people. Unlike PIP, Med-Pay coverage is entitled to reimbursement, also known as “subrogation,” whereas PIP is not.
“Subrogation” refers to the right of an insurance company to get reimbursed in the event you make a settlement with a liable third party. Consider this example. Let’s say you are injured in a car accident and have $5,000 in medical expenses. You also carry $2,500 in PIP coverage on your auto policy. Once you are done treating and are released from your doctor’s care, your lawyer will submit your case to the other driver’s insurance company as well as your own for PIP benefits. If you settle your case for $7,500 with the other driver’s insurance company, you can also expect to get another $2,500 from your policy under the PIP coverage. Likewise, your total recovery is $10,000.
However, if you had Med-Pay coverage, then your insurance company would be entitled to reimbursement of the $2,500 in Med-Pay benefits. In the example above, if you collect the Med-Pay benefits of $2,500 and also enter into a settlement for $7,500 with the other driver’s insurance company, you would not have $10,000 in total funds to work with. You would have to account for reimbursement of the Med-Pay benefits, thereby leaving you with a total recovery of $7,500. In the end, you just paid premiums for Med-Pay coverage and received no real benefits from it at all. This is the most important part of Med-Pay coverage that your agent may not clearly explain to you.
So, the next time your insurance agent tells you that there is no real difference between PIP and Med-Pay coverage, don’t believe it. Get the PIP. The Med-Pay coverage is a waste of money. Additionally, you are not limited to only $2,500 in PIP coverage. That is just the state required minimum. You can purchase more PIP coverage depending on how much coverage your insurance company is willing to provide.
