Step-down Provisions – The Danger of Low Cost Auto Insurance

Step-down Provisions – The Danger of Low Cost Auto Insurance

While we’ve covered the topic of auto insurance before, whether it was the basics of insuring your vehicle or what type of coverage you need for your classic car, there is one item that consumers most often miss, and it’s not uncommon oversight, either. While it’s usually included in the “fine print” section, step-down provisions tend to be overlooked. In this article we’ll take a look at what they are and what you, as an insured consumer, should be aware of.

What’s a Step-down Provision?

 A step-down provision is typically added to your auto insurance policy to limit claims for motorists that aren’t listed on your policy. This provision in a policy allows the insurer to reduce coverage to the minimum state requirements when the insured vehicle is being driven by someone that’s not specifically listed on a policy. That person is known as the “permissive driver.” The most frequently encountered situation where step-down provisions come into effect is when there are multiple auto insurance policies under the same household.

If you’re wondering who this provision is for, you are correct to assume that many low-cost auto insurers save money by adding this seldom seen provision to your insurance policy. They are able to, in turn, provide lower premiums because they are assuming less risk. As a consumer, it is perfectly acceptable if you don’t have money or assets to protect; however, if you do, you may be opening yourself to a huge gap.

Step-down Provisions in Action

Let’s take a look at an example:

Suppose you have $1,000,000 of auto liability coverage for your vehicle. Your friend needs to borrow your car because his is in the shop, and so you give him permission (a permissive driver). On the way back home, your friend is involved in a car accident, ruining both your vehicle and another’s, killing the driver. The driver’s family and insurance company sue you for $500,000.

What’s the outcome?

If you were thinking you were covered for the $500,000 because you had $1,000,000 of auto liability coverage, you’d be wrong. Instead, the step-down provision states that only the person listed (and others specified) at $1,000,000 is covered. The permissive driver is covered at your state minimum, which is almost always far lower than if they were adequately covered. However, damages exceeding those state minimums are NOT covered, which means you’d be responsible (if found guilty in court) for $500,000 minus the state minimum coverage.

*Note: If you believe that step-down provisions seem unfair to the consumer and may be against the public’s best interest, you may not be alone. While a state like New York tends to honor step-down provisions, South Carolina has recently had a verdict ruled in favor of the consumer after going to the state’s Supreme Court.  http://www.newyork-injurylawyerblog.com/2014/09/williams-v-geico-family-step.html]

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There are certainly more variables that come into play when considering just how an employer’s workers comp , umbrella coverage, and other forms of insurance are present when considering step-down provisions. Because of the confusing and ever-evolving nature of step-down provisions, contact a RiskBlock advisor today to find an insurance company that’s fits you at a reasonable rate.