What is Uninsured and Underinsured Motorist Coverage?

What is Uninsured and Underinsured Motorist Coverage?

What is Uninsured and Underinsured Motorist Coverage?
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What is Uninsured and Underinsured Motorist Coverage

Despite being a legal requirement in most states, many drivers in the U.S. still don’t carry the requisite auto insurance. Except for New Hampshire, every state in the U.S. has a minimum mandatory auto insurance requirement. Despite these requirements, the Insurance Information Institute observes that about one in eight drivers doesn’t carry car insurance coverage, and in some states that number is one in five drivers. 


Don’t put your financial health at risk—make sure you carry at least your state minimum auto insurance and learn how to protect yourself in the event of an accident with a motorist who is uninsured or underinsured.


How Do Uninsured and Underinsured Motorist Coverage Differ?

The terms underinsured and uninsured motorist coverage are often used interchangeably but represent two different aspects of auto insurance. The main difference between both coverages lies in what they protect you against. Uninsured motorist covers you if you’re involved in an accident caused by a driver who doesn’t have liability insurance—not even the mandated state minimum insurance coverage.


Underinsured motorist coverage swings into action when you’re involved in an accident, and the liability limits of the liable driver are too low to offset the medical expenses of injured people. In this case, the other driver’s insurance will normally pay for all damages up to his/her car insurance policy limits, then your underinsured coverage kicks in to pay the excess amount up to your selected limits.


Many states require that drivers carry uninsured motorist coverage at the bare minimum, if not both uninsured and underinsured motorist coverage. Remember, uninsured and underinsured coverage will typically cost more to add to your insurance policy in states with a higher percentage of uninsured drivers. Even so, it could still save you from footing out-of-pocket bills for a car accident you didn’t cause.


What Happens When You’re Underinsured?

If you are flagged as underinsured, it means that you have insurance coverage, but the limits are not high enough to cover the full expenses of your claim. Each state in the U.S. mandates auto insurance coverage and sets the minimum limits that drivers must carry. In an attempt to save money on insurance premiums, you might purchase a policy with the minimum coverage limits. 


Should you cause an accident, however, the minimum liability coverage limits may not be sufficient to pay for all the damages. In this case, you’ll cater for any out-of-pocket charges that go beyond your coverage limits. Instances where the costs of damage may exceed your coverage limits include:


If multiple passengers in the other vehicle are injured

If the other vehicle is significantly damaged or totaled

If injuries inflicted compel the driver or passengers to stay out of work for a long time

If there’s additional property damage beyond the other driver’s vehicle


As you shop for auto insurance coverage, remember that the minimum liability limits are just a starting point. Increasing your coverage limits should help you reduce out-of-pocket expenses after an accident for which you’re at fault. 


How Uninsured and Underinsured Coverage Works

The law requires that drivers carry liability insurance on their auto insurance policies. However, this doesn’t stop many from driving without it altogether. Uninsured and underinsured motorist insurance covers your injuries, your passenger’s injuries, and any damage to your vehicle if you’re hit by a driver with inadequate or no auto insurance coverage at all. Depending on the state you live in, uninsured and underinsured motorist coverage may be separate, combined, or consist of different coverage types. Here’s a breakdown of how each coverage works. 

Underinsured Motorist Insurance Coverage

Let’s face it; a driver may carry the minimum amount of liability insurance needed to legally drive in their state, but the coverage may not be sufficient to pay for injuries and damages that result from an accident they are liable for. Now, underinsured motorist coverage comes in.


Underinsured motorist coverage covers you if you’re involved in an accident caused by a driver who carries some form of auto insurance, but his/her coverage limits aren’t high enough to meet your claim payout. This coverage extends to the insured members of your household as well as any passengers riding alongside you.


So, if you’re involved in an accident caused by an underinsured driver, their insurance will pay for injuries up to their policy limit, and your underinsured motorist coverage will come in to cover the remaining amount up to your policy limits. You could be left with hefty out-of-pocket costs for some medical expenses if you don’t have this coverage—even if you were not at fault.


For example, if the other driver’s liability policy limit is $60,000 and you end up with $70,000 worth of damage, an underinsured motorist coverage will prevent you from paying the $10,000 difference out-of-pockets if your policy limits exceed $60,000.


Uninsured Motorist Insurance Coverage

Uninsured motorist coverage provides similar protection as underinsured motorist coverage, except you’re only protected from drivers who carry zero auto insurance. Not only is the driver cruising around illegally (except in New Hampshire), but they most certainly won’t pay you for damages or injuries sustained during the accident for which they caused.


Uninsured motorist coverage helps you avoid falling victim to a huge expense payout for an accident you didn’t cause. You’re also protected from paying for the cost of the injuries you sustain in a hit-and-run accident.


Two common types of uninsured motorist coverage that you may add to your auto insurance policy include:


  • Uninsured motorist bodily injury: The following expenses are covered if you’re injured by someone who doesn’t have auto insurance:
    • Medical expenses
    • Loss of income
    • Funeral expenses
  • Uninsured motorist property damage: This coverage offers a safety net if your car is damaged by an uninsured motorist. Otherwise, you’d have to pay for the car repairs out of pocket or file a claim against the at-fault driver in court. Some states neither offer nor mandate uninsured motorist property damage liability. 


Do You Need Uninsured or Underinsured Motorist Coverage?

So, do you need uninsured or underinsured motorist coverage? Well, it depends. Some states will require you to carry one or both coverages, while others recommend them as optional coverages. Whatever the case, the peace of mind that comes with having this coverage is worth the extra cost. Uninsured and underinsured motorist coverage is an essential aspect of any auto insurance package. To proactively plan for the unexpected, speaking to an insurance agent will help you better understand what coverage is required or offered in your state.


Conclusion and Recommendations

You’ll have yourself to thank for underinsured and uninsured motorist coverage if you are involved in an accident caused by a driver who doesn’t carry any insurance or whose limits aren’t enough to cover your bills. An added advantage is that you may “stack” your underinsured and uninsured coverage if you’ve listed more than one car on your policy. 


When this coverage is stacked, your coverage is typically multiplied by the number of cars you own. For instance, if you’re a Maryland driver with limits of $30,000/$60,000, adding a second car will increase your limits to $60,000 per person and $120,000 per accident. 


For extra protection on the road, consider adding the following coverages along with your uninsured and underinsured motorist coverage:


  • Collision insurance. This optional coverage should help you pay to repair or replace your vehicle when it’s hit by another vehicle or an object.
  • Medical expense coverage.  Medical payment coverage may help offset the costs of medical care for you and your passengers regardless of who’s at fault for the accident.


Different types of underinsured motorist coverage are available from most insurance providers. Some coverage will include bodily injury and others will be for property damage, while still others will cover both costs. Regardless, carrying the right auto insurance coverage gives more confidence behind the wheel.


Frequently Asked Questions

What is the difference between uninsured and underinsured?

Uninsured coverage pays for your expenses after an accident caused by a driver who doesn’t have any auto insurance. On the other hand, underinsured coverage applies when the at-fault driver’s insurance isn’t enough to cover your bills.


How much underinsured motorist coverage do I need?

While the amount of underinsured motorist coverage you need depends on several factors, it often comes down to your state requirements, the amount of risk you’re willing to take on, and how much coverage you can afford to buy. Limits for underinsured motorist coverage will vary by state, so a general rule of thumb is to purchase at least the minimum amount required.


Another way to go about it is by matching your bodily injury liability coverage limits. So, if you carry a policy with $30,000 of bodily injury liability coverage per person and $60,000 per accident, you’d need the same amount of protection from your underinsured motorist coverage.


Uninsured and underinsured motorist coverages can be tough to understand, which is why it’s best to work with an experienced insurance agent to walk you through the appropriate uninsured and underinsured motorist coverage limits.


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