By Steven Wilder
Last month I wrote about changes coming to auto insurance, for policies that renew after July 1. This month, I will focus on 2 of the biggest changes, which impact specified benefits: Income Replacement Benefits (“IRBs”) and Non-Earner Benefits (“NEBs”).
Specified benefits are currently included in all auto insurance policies. Drivers do not pay extra for these benefits. Rather, they are included in the premium you pay for ‘standard coverage’. However, after July 1, you will need to pay for these coverages, which I strongly suggest you do.
IRBs are paid to people who are unable to work after an accident. The standard coverage is 70% of your gross pre-accident earnings, up to a maximum of $400 per week. You can purchase additional coverage to increase your IRBs, which you should strongly consider if you are earning more than $600 per week before taxes or deductions. The reason to pay for the additional coverage is that 70% of $600 is $420, which exceeds the standard $400 per week coverage.
The weekly limit of IRBs is devastating for injured individuals, as they struggle to pay their rent / mortgage on $400 per week, let alone any other bills. This has forced many people to return to work earlier than they should, which has complicated and prolonged their recoveries. Some individuals even suffered subsequent injuries and job losses, due to performance and attendance issues, after their return to work. Needless to say, many clients express regret that they did not increase their IRB coverage before the accident happened.
NEBs are paid to people who are not working at the time of the accident and do not qualify for IRBs. The benefits are limited, starting 4 weeks after the accident and paying $185 per week for a maximum of 100 weeks. In addition, the legal test is whether an individual suffers a complete inability to carry on a normal life after an accident, which is much more difficult to meet than the IRB test.
Starting July 1, individuals will now be charged for both IRB and NEB coverage. I suspect this will lead to situations where individuals who are faced with different renewal options and prices will simply choose the lowest-cost option, without understanding the differences and the impact it can have. Who wants to pay more for an accident that will never happen to them, right?
However, I worry for these individuals, who will not likely feel the consequences of their decision until they are off work, unable to pay their bills, and expressing regret.