July 5, 2022

Step-Down Clauses in Car Insurance

Why your family member may not get covered under the limit you selected

Step-down clauses are one of the most controversial topics in car insurance, and they exist in only 13 states. Step-down clauses prevent family members from collecting more than the state’s minimum coverage in at-fault accidents, even if you have much higher liability limits.

In other words, if you have a step-down clause on your policy and get into an accident while a family member is in your car, that family member could collect only the state’s minimum amount in coverage; the limit you’ve selected for your policy won’t apply. These clauses apply to family members only, and states offer them to prevent fraudulent claims.

Let’s learn more about step-down clauses, which are also known as an intra-family limitation or intra-family exclusion clauses.

Step-Down Clause

Not all car insurance policies contain step-down clauses, but you should know if yours does.

What It Is

A step-down clause, or step-down provision, is a part of a car insurance policy that prohibits an injured family member of a driver from collecting the full amount of bodily injury liability coverage the driver has selected on their policy. They can collect up to the state’s minimum liability coverage only.

How It Works

Let’s say you live in Michigan, one the 13 states where step-down clauses are legal. If you got into an accident with a family member in the car and you have a step-down clause, the family member could collect up to $50,000 in bodily injury liability coverage, the minimum coverage in Michigan, even if your limit is $500,000. Still, you and any other non-family member in the car could collect up to your limit of $500,000.

Why They Exist

According to car insurance companies, step-down clauses exist to prevent fraudulent claims. However, in Michigan, fraudulent claims are already illegal under MCL 500.4511(1) and punishable by the following:

  • Imprisonment up to four years
  • A fine of up to $50,000
  • Restitution fees1

Car insurance policies also prohibit fraudulent claims explicitly. Plus, if a provider thinks a claim is fraudulent, it can dispute the claim. Many traffic and personal injury lawyers say that step-down clauses are unjust and solely a way for insurance companies to avoid paying claims and collect increased profits. Tom Sinas, a personal injury attorney based in Grand Rapids, Michigan, called step-down clauses “repugnant and reprehensive … one of the frightening and dangerous insurance laws in our state.”

While an insurance policy with a step-down clause may be cheaper, you will end up paying more if a family member gets injured in an accident that occurs while you’re driving. In sum, finding cheaper car insurance isn’t worth it if your policy includes a step-down clause.

Where They’re Legal

Step-down clauses are legal in the following states:

  • Arizona
  • California
  • Florida
  • Indiana
  • Michigan
  • Missouri
  • Nevada
  • New Jersey
  • New York
  • Ohio
  • Pennsylvania
  • South Carolina
  • Utah

However, some states explicitly prohibit step-down clauses:

  • Wisconsin
  • Utah
  • Kentucky2

To protest step-down clauses, call your state’s department of insurance. See below for the contact information.

State Website of the insurance department Phone number of the insurance department Mailing address of the insurance department
Alabama http://www.aldoi.gov 334-269-3550 201 Monroe St., Suite 502

Montgomery, AL 36104

Alaska https://www.commerce.alaska.gov/web/ins/ 907-269-7900 550 W. Seventh Ave., Suite 1560

Anchorage, AK 99501-3567

Arizona https://insurance.az.gov/ 602-364-3100 100 N. 15th Ave., Suite 261

Phoenix, AZ 85007-2630

Arkansas https://insurance.arkansas.gov/ 501-371-2600 1 Commerce Way

Little Rock, AR 72202

California http://www.insurance.ca.gov 800-927-4357 300 S. Spring St., South Tower

Los Angeles, CA 90013

Colorado https://doi.colorado.gov/ 303-894-7499 1560 Broadway, Suite 850

Denver, CO 80202

Connecticut https://portal.ct.gov/cid 860-297-3900 153 Market St., Seventh Floor

Hartford, CT 06103

Delaware https://insurance.delaware.gov/ 302-674-7300 1351 W. North St., Suite 101

Dover, DE 19904

District of Columbia http://www.disb.dc.gov 202-727-8000 1050 First St. NE, 801

Washington, D.C. 20002

Florida http://www.floir.com 850-413-3140 The Larsen Building

200 E. Gaines St., Room 101A

Tallahassee, FL 32399-0301

Georgia https://oci.georgia.gov/ 404-656-2070 2 Martin Luther King Jr. Drive, West Tower, Suite 702

Atlanta, GA 30334

Hawaii http://cca.hawaii.gov/ins/ 808-586-2790 P.O. Box 3614

Honolulu, HI 96811

Idaho http://www.doi.idaho.gov/ 208-334-4250 700 W. State St., Third Floor

Boise, ID 83720-0043

Illinois https://insurance.illinois.gov/ 217-782-4515 320 W. Washington St.

Springfield, IL 62767-0001

Indiana http://www.in.gov/idoi 317-232-2385 311 W. Washington St., Suite 300

Indianapolis, IN 46204-2787

Iowa https://iid.iowa.gov/ 515-654-6600 1963 Bell Ave., Suite 100

Des Moines, IA 50315

Kansas https://insurance.kansas.gov/ 785-296-3071 1300 SW Arrowhead Road

Topeka, KS 66604-4073

Kentucky https://insurance.ky.gov 502-564-3630 500 Mero St. 2 SE 11

Frankfort, KY 40601

Louisiana http://www.ldi.la.gov 225-342-5423 1702 N. Third St.

Baton Rouge, LA 70802

Maine https://www.maine.gov/pfr/insurance/ 207-624-8475 34 State House Station

Augusta, ME 04333-0034

Maryland http://www.mdinsurance.state.md.us 410-468-2090 200 St. Paul Place, Suite 2700

Baltimore, MD 21202

Massachusetts https://www.mass.gov/orgs/division-of-insurance 617-521-7794 1000 Washington St., Suite 810

Boston, MA 02118

Michigan https://www.michigan.gov/difs/ 517-284-8800 530 W. Allegan St.

Lansing, MI 48933

Minnesota https://mn.gov/commerce/industries/insurance/ 651-296-4026 85 Seventh Place E., Suite 500

St. Paul, MN 55101

Mississippi http://www.mid.state.ms.us 601-359-3569 1001 Woolfolk State Office Building 501 N. West St.

Jackson, MS 39201

Missouri https://insurance.mo.gov/ 573-751-4126 301 W. High St.

P.O. Box 690

Jefferson City, MO 65102-0690

Montana https://csimt.gov/ 406-444-2040 840 Helena Ave., Suite 270

Helena, MT 59601

Nebraska https://doi.nebraska.gov/ 402-471-2201 Terminal Building

941 O St., Suite 400

Lincoln, NE 68508-3639

Nevada https://doi.nv.gov/ 775-687-0700 1818 E. College Parkway, Suite 103

Carson City, NV 89706

New Hampshire https://www.nh.gov/insurance/ 603-271-2261 21 S. Fruit St., Suite 14

Concord, NH 03301-7317

New Jersey https://www.state.nj.us/dobi/index.html 609-292-5360 20 W. State St.

P.O. Box 325

Trenton, NJ 08625

New Mexico https://www.osi.state.nm.us/ 855-427-5674 1120 Paseo de Peralta, Suite 428

Santa Fe, NM 87501

New York https://www.dfs.ny.gov/ 212-480-6400 25 Beaver St.

New York, NY 10004

North Carolina https://www.ncdoi.gov/ 855-408-1212 1201 Mail Service Center

Raleigh, NC 27699-1201

North Dakota https://www.insurance.nd.gov/ 701-328-2440 State Capitol

600 E. Boulevard Ave., Dept. 401, Fifth Floor

Bismarck, ND 58505-0320

Ohio https://insurance.ohio.gov/wps/portal/gov/odi 614-644-2658 50 W. Town St., Third Floor, Suite 300

Columbus, OH 43215-1067

Oklahoma https://www.oid.ok.gov/ 405-521-2828 400 NE 50th St.

Oklahoma City, OK 73105

Oregon https://dfr.oregon.gov/Pages/index.aspx 503-947-7980 P.O. Box 14480

Salem, OR 97309-0405

Pennsylvania https://www.insurance.pa.gov/Pages/default.aspx 717-787-2317 1326 Strawberry Square

Harrisburg, PA 17120

Rhode Island https://dbr.ri.gov/divisions/insurance/ 401-462-9500 1511 Pontiac Ave.

Cranston, RI 02920

South Carolina https://doi.sc.gov/ 803-737-6160 1201 Main St., Suite 1000

Columbia, SC 29201

South Dakota https://dor.sd.gov/ 605-773-4104 445 E. Capitol Ave.

Pierre, SS 57501-3185

Tennessee https://www.tn.gov/commerce/insurance-division.html 615-741-2241 500 James Robertson Parkway, Suite 660

Nashville, TN 37243-0565

Texas https://www.tdi.texas.gov/ 512-676-6000 333 Guadalupe St.

Austin, TX 78701

Utah https://insurance.utah.gov/ 801-957-9200 4315 S. 2700 W., Suite 2300

Taylorsville, UT 84114-6901

Vermont https://dfr.vermont.gov/industry/insurance 802-828-3301 89 Main St., Drawer 20

Montpelier, VT 05620-3101

Virginia https://www.scc.virginia.gov/ 804-371-9741 Tyler Building
1300 E. Main St.Richmond, VA 23219
Washington http://www.insurance.wa.gov 360-725-7100 Insurance Building

P.O. Box 40255

Olympia, WA 98504-0255

West Virginia http://www.wvinsurance.gov 304-558-3386 West Virginia Lottery Building

900 Pennsylvania Ave.

Charleston, WV 25302

Wisconsin https://oci.wi.gov/Pages/Homepage.aspx 608-266-3585 125 S. Webster St.

Madison, WI 53703-3474

Wyoming http://insurance.state.wy.us 307-777-740 Herschler Building

106 E. Sixth Ave.

Cheyenne, WY 82002

NOTE

After you contact your state’s insurance department, contact the insurance commissioner to complain about the legality of step-down clauses.

Do I Have One?

Many people aren’t aware that their insurance policies have step-down clauses. Most likely, your car insurance agent or broker didn’t tell you about this clause when you bought the insurance policy originally.

To see if you have a step-down clause, you’ll need to read your insurance policy. Look for language that talks about excluding bodily injury coverage for relatives. If you’re unsure if your policy includes a step-down clause, contact the agent or broker from whom you purchased the insurance.

TIP

If you find out you have a step-down clause and you transport family members in your car regularly, you should switch insurance companies as soon as possible to get the coverage you pay for.

Example

Let’s say you’re a Michigan mom driving your son and his friend to soccer practice. You bump into the car in front of you, and all three of you are injured.

Unfortunately, your $250,000 of bodily injury liability coverage will apply only to you and your son’s friend. Your son would be limited to the state’s minimum coverage of $50,000. In other words, you would have to pay out of pocket for any of your son’s medical costs above $50,000.

Why Are Step-Down Clauses Legal?

To put it simply, step-down clauses are legal because both insurance commissioners and state appellate courts allow them.

Take the 2004 case of Ruzak v. USAA, for example. A woman was injured when her husband fell asleep behind the wheel and hit a tree with her in the passenger seat. Even though he had $300,000 worth of liability coverage, his wife was only covered up to $20,000, the minimum liability coverage at the time. Unfortunately, the Michigan State Court of Appeals said the step-down clause was legal, as did the Supreme Court when the woman appealed the case.3

However, many groups work tirelessly to end step-down clauses, saying they are unfair, so the tides could eventually change.

Insurance Companies That Use Step-Down Clauses

Be careful when buying insurance from any of the following companies, as they allow step-down clauses:

  • AAA
  • Farm Bureau
  • GEICO
  • Grange4
  • Progressive
  • USAA5

Recap

Don’t sign up for a policy without reading it thoroughly, or having a lawyer read it thoroughly for you. Step-down clauses are one of the many perils you could face from an auto insurance company. To learn more about car insurance coverages, read about liability coverage, mechanical coverage, and uninsured and underinsured motorist coverage.

Frequently Asked Questions

Learn even more information about step-down clauses below.

What is a step-down clause?

A step-down clause is a part of a car insurance policy that states that family members will be covered up to the minimum coverage amount that the state requires and not the bodily injury liability limit you’ve selected.

Can I downgrade my car insurance?

You can downgrade your car insurance, so long as you’re meeting your state’s required minimum coverages. However, note that if you get into an accident, you may have to pay more out of pocket.

Where are step-down clauses legal?

Step-down clauses are legal in the following states:

  • Arizona
  • California
  • Florida
  • Indiana
  • Michigan
  • Missouri
  • Nevada
  • New Jersey
  • New York
  • Ohio
  • Pennsylvania
  • South Carolina
  • Utah

Which insurance companies allow step-down clauses?

These are some insurance companies that allow step-down clauses:

  • AAA
  • Farm Bureau
  • GEICO
  • Grange
  • Progressive
  • USAA

Citations

  1. 500.4511 Violation as felony; penalty; notice to licensing authority. Michigan Legislature. (1996).
    http://www.legislature.mi.gov/(S(1qzmrl0tv1rvs3piigp220js))/mileg.aspx?page=getobject&objectName=mcl-500-4511

  2. Risk Management. The Rough Notes Company.
    https://roughnotes.com/rnmagazine/2012/october2012/2012_10p032.htm

  3. CYNTHIA C. RUZAK, v USAA INSURANCE AGENCY. STATE OF MICHIGAN COURT OF APPEALS.
    https://roughnotes.com/rnmagazine/2012/october2012/2012_10p032.htm

  4. Step-Down Auto Insurance Clause: Every Michigan Family’s Nightmare. Sinas Dramis.
    https://sinasdramis.com/step-down-auto-insurance-clauses-every-michigan-familys-nightmare/

  5. AUTO INSURANCE STEP-DOWN CLAUSES AND HOW THEY HURT MICHIGAN FAMILIES. Christensen Law. (2022, Mar 15).
    https://www.davidchristensenlaw.com/warning-if-your-no-fault-policy-has-a-step-down-clause-you-should-switch-insurance-companies/