Underinsured Motorist Coverage: The Underappreciated Insurance

May 5, 2014

Let’s start with a few questions that far too few people can answer: (1) What is underinsured motorist (“UIM”) coverage? (2) Do you have UIM coverage on your car? (3) If so, how much coverage do you have? (4) What would it take for you to get the full amount of that coverage if you were injured?

Too few people carry underinsured motorist coverage, and those that do often do not carry enough. Underinsured motorist coverage protects you when you are injured by someone who does not have enough insurance to cover the damages you suffer. At a time when medical bills can easily run into five or even six figures, this coverage has become ever more important.

While insurance companies are required to offer underinsured motorist coverage, they make very little effort to encourage people to purchase it. Even agents often seem not to understand or appreciate exactly how underinsured motorist coverage works and how important it can be.

In many cases, people have higher limits for their liability coverage than they do for their underinsured motorist coverage. In effect, they are providing more protection for others than they are for themselves. Doing that also increases the risk you will not be able to use your underinsured motorist coverage at all, because if the limits of your underinsured motorist coverage are not higher than the liability limits of the person who injures you, your coverage will not apply.

Let’s take a simple example. If you have a significant injury and incur medical expenses of $50,000, it is likely you have a claim that is worth at least $100,000 and probably more than that. If the person who hits you has liability coverage of $50,000 per person and $100,000 per accident, he is clearly underinsured from your standpoint. The problem is companies define an underinsured motorist as someone who has liability limits that are lower than your underinsured motorist limits. So if your underinsured motorist limits are $50,000 per person and $100,000 per accident, the coverage will not apply. Moreover, your underinsured motorist coverage limits will be reduced by any amounts paid by the other motorist so that even if you have $100,000 in underinsured motorist coverage, the most you will be able to recover is $50,000 in our example.

All of this means you should discuss underinsured motorist coverage with your agent and make sure you have an adequate amount. In my mind, that is at least $100,000 per person, and I think it is preferable to have $250,000 per person. Underinsured motorist coverage is not expensive, generally far less than liability coverage, and you should be sure you and your family are adequately protected against careless drivers who all too often are just as careless about carrying adequate insurance.

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