How Underinsured Motorist Coverage Protects You After a Serious Crash
Most drivers assume that if someone else causes an accident, that driver's insurance will pay for the damage. In many cases, it does. But what happens when the at-fault driver's insurance is not enough to cover the costs?
That is where underinsured motorist coverage comes in. Often called UIM coverage, it helps pay for your losses when the at-fault driver has insurance, but their policy limits are too low. It fills the gap between what their policy pays and what your costs actually are.
This gap is more common than many people realize. Every state with mandatory auto insurance sets minimum liability limits that drivers must carry. In many states, those minimums are quite low compared to the cost of a serious crash.
For example, some states require as little as $25,000 in bodily injury coverage per person. A hospital stay, surgery, physical therapy, and lost wages can easily exceed that amount. When they do, the injured driver may be left with large unpaid bills.
Underinsured motorist coverage helps protect you when the at-fault driver's insurance limits are too low.
Underinsured motorist coverage is related to, but different from, uninsured motorist coverage. Uninsured motorist coverage, often called UM, applies when the at-fault driver has no insurance at all. It can also apply in many hit-and-run accidents.
UIM applies when the other driver does have insurance, but not enough. Many insurers offer UM and UIM together as a package. In some states, they are combined into a single coverage.
UIM coverage most often pays for bodily injury expenses. These can include medical bills, lost income, and pain and suffering, depending on state law and the policy. Some states also offer underinsured motorist property damage coverage, which helps pay for vehicle repairs.
The coverage usually protects more than just the policyholder behind the wheel. It may also cover family members living in the same household and passengers in the insured vehicle. In many cases, it can apply when the policyholder is a pedestrian or cyclist hit by an underinsured driver.
How UIM pays out depends on state rules. In some states, UIM pays the difference between the at-fault driver's limits and your UIM limits. For example, with $100,000 in UIM coverage and an at-fault driver carrying $25,000, the UIM might pay up to $75,000.
In other states, UIM can pay on top of the at-fault driver's coverage. Using the same example, the UIM might pay up to the full $100,000 after the other driver's $25,000 is paid. This difference can significantly affect how much protection a policy provides.
Some states require drivers to carry UIM coverage. Others require insurers to offer it, allowing drivers to reject it in writing. In some states, it is entirely optional.
UIM coverage limits are often expressed as two numbers, such as 100/300. The first number is the maximum paid per person, and the second is the maximum per accident. Many insurers do not allow UIM limits to be higher than a driver's own liability limits.
Some states allow stacking. Stacking means combining UIM limits from multiple vehicles on the same policy or from several policies. This can increase the total amount of coverage available after a serious crash.
After an accident, the claims process for UIM has some special steps. Typically, the at-fault driver's insurer pays its full policy limit first. Then the injured person can file a claim under their own UIM coverage.
It is important to notify your own insurer before accepting a settlement from the other driver's company. Many policies require consent before settling. Failing to follow this step could affect the ability to collect UIM benefits.
UIM coverage is often affordable compared to other parts of an auto policy. Because it can provide significant protection, many insurance professionals recommend carrying limits that match your liability coverage. The right amount depends on your income, assets, and health insurance.
Health insurance may cover some medical costs after an accident, but it does not cover everything. It usually does not replace lost wages or pay for pain and suffering. UIM coverage can help with these broader losses.
Underinsured motorist coverage provides an important layer of financial protection on the road. Understanding how it works and how your state handles it helps drivers make informed choices. An experienced insurance agent can review your policy and help you choose coverage that fits your needs.