PIP Insurance Definition

by Kristen May

PIP stands for personal injury protection, a type of auto insurance that is mandatory in some states and optional in others. It covers several costs related to injuries to the policyholder and passengers in an accident. The PIP coverage allows them to rest assured that their costs will be covered right away regardless of who the auto insurance companies determine is at fault.

What PIP Covers

The specifics of PIP coverage vary slightly from one state to another, but in general it covers at least the medical expenses of the driver and passengers injured in an accident and the funeral costs if applicable. In addition, it may cover lost wages if the injured individuals need to take time off of work. PIP insurance in some states also covers hiring someone to complete tasks that are impossible because of injuries. These may include caring for children or cleaning the home. In all cases, the coverage has a maximum amount set on the policy. Some states have a specific amount that every driver carries, whereas others allow drivers to choose how much coverage to purchase.

PIP Requirements

Some states require that all drivers carry at least a minimum amount of PIP insurance. For example, Florida requires drivers to have at least $10,000 of PIP coverage. Other states with mandatory PIP include Arkansas, Delaware, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania and Utah. States in which PIP is offered but optional include New Hampshire, South Dakota, Texas, Virginia, Washington, Wisconsin and the District of Columbia. Individuals who decline PIP coverage in the optional states typically must sign a waiver acknowledging that they understand the decision.

Advantages and Disadvantages

The major advantage of PIP is that it pays out for medical costs and lost wages right away. Anyone injured in an auto accident can make a claim from his own policy, which eliminates the hurdle of working with the other driver's insurance company to determine who is at fault and which company is paying. In addition, it often covers lost wages and other peripheral costs related to being injured, which can help people avoid financial setbacks. The major disadvantage to PIP is that many claims are fraudulent, which increases everybody's premiums. People take advantage of the coverage to exaggerate the extent of their injuries, get free chiropractic and other medical care and take paid time off work. For example, the Insurance Information Institute estimates PIP fraud in Florida of $58 per vehicle in 2010, which totaled $658 million statewide.

When to Purchase PIP

In states with optional PIP coverage, drivers need to consider whether the potential benefits of the coverage outweigh the costs. The cost varies significantly among states, so the best way to find it is to get a quote. People who have great health insurance and won't be hurt financially by missing work due to an injury may want to skip the coverage. People who carpool or frequently drive others in their vehicle may want to purchase the coverage to ensure that passengers' injuries are taken care of in an accident.

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