You’ve heard of uninsured motorists, who are drivers who don’t have any vehicle insurance at all. But what about underinsured motorists? Are you one of the thousands who are underinsured, or don’t carry enough insurance?
Causing an accident as an underinsured motorist or being hit by an underinsured motorist can lead to an expensive situation. Here, we’ll consider the definition and examples of being underinsured.
Definition and Examples of Being Underinsured
The definition of “underinsured” may depend on the circumstances of a collision. Often, this term refers to your policy not being able to fully pay for the damages claimed because of your low maximum limits. In other words, your policy comes up short.
You may not think you’re at risk of underinsurance because you’ve followed state law by signing up for a policy that meets the state’s minimum insurance requirements. This is understandable, but state minimums can vary widely, and may not take into account the worst-case scenario.
For example, state minimums for insurance can range from $15,000 per person/$30,000 per accident in Pennsylvania to $50,000 per person/$100,000 per accident in Maine.
If you’re in a state with a minimum of $25,000 and the person you hit has hospital bills and other claims that add up to $50,000, you may be an underinsured motorist.
Even if you took out more than the state’s minimum—for example, $50,000—but the injured person’s lost wages, physical therapy, and other bills add up to $75,000, you could be underinsured by $25,000.
How Being Underinsured Works
If you’re underinsured, you may be putting yourself at risk every time you slide behind the wheel. If you’re in an accident and you cause damage beyond your policy limits, the other individual could sue you in court for the difference between your policy’s payout and the actual costs, and this could even lead to bankruptcy.
If the other driver has uninsured/underinsured motorist coverage, their insurance company may pay the difference between your policy’s payout and the actual costs. However, it probably isn’t wise to rely on the other driver covering your risk.
How Underinsured Motorist Insurance Works
If you’re a driver in an accident with an underinsured motorist, hopefully, your policy contains uninsured/underinsured motorist protection, also known as “UM” or “UIM.” The coverage helps make up the difference between the driver’s policy limits and the damages to your vehicle or your body. Depending on your type of coverage, underinsured motorist coverage may cover:
- Medical bills
- Lost wages
- Pain and suffering
- Car repairs
- Funeral services
Fourteen states require uninsured and underinsured coverage, other states require insurers to offer it, and some states require neither.
Some states, including Nebraska and Minnesota, require underinsured/uninsured motorist coverage for bodily injury, but not for property damage. If an underinsured motorist wipes out your tulip garden and garage, you likely won’t be able to claim those damages. On the other hand, Vermont and Virginia require coverage for property damage by an underinsured motorist.
Before your insurance pays your claim under underinsured motorist coverage, you may need to also pay your deductible or the amount you agreed in advance to pay if in an accident. There also may be strict time limits regarding how soon you need to file an underinsured motorist claim with your insurance company—for example, it may need to be filed within 30 days. After you provide your medical or property documentation, your insurance company reviews the claim and settles with you.
In some states, you may be able to employ a “stacking” strategy for an underinsured claim. With this approach, you can combine maximum limits for multiple insured vehicles or policies. So, you can “stack” two $25,000 underinsured motorist policies for a limit of $50,000.
With some policies, an underinsured motorist claim payment might be reduced by the amount of coverage that the other driver's policy provided. So, it is important to read the language of your UIM coverage as you may actually not be able to collect the full coverage amount when you are in an accident with an underinsured driver.
Alternatives to Being Underinsured
To avoid being underinsured, speak with an agent or review the state limits. You’ll want to have enough coverage to pay any claims that result from an auto accident you cause.
If you have significant wealth to protect, you also might consider an umbrella policy. An umbrella policy effectively increases your limits beyond the maximum available from your insurance company. Depending on your insurer, you may be able to add uninsured/underinsured motorist coverage to your umbrella policy, thereby increasing the limits of your coverage.
If you want to protect yourself from an underinsured driver’s damages, you can take out uninsured/underinsured motorist coverage. Typically, these are sold in addition to your policy, if you live in a state where it isn’t legally required.
- Underinsured motorists don’t carry enough auto insurance to cover the gap between the damages they caused and the maximum their insurance policy reimburses.
- To reduce the chances of being an underinsured driver, consider carrying more than your state’s minimum.
- If you’re a driver with an uninsured/underinsured motorist policy, your insurance company may cover the difference between the actual costs and the at-fault driver’s policy payout.
- Underinsured coverage may include bodily injury only, or bodily injury and property damage.
How Long Does It Take to Resolve an Underinsured Motorist Claim?
Some underinsured motorist claims may take longer to evaluate and settle than other claims. These delays may come from waiting to determine the final costs associated with the length and severity of medical treatments and property repairs. There also may be settlement disagreements between insurance companies, or between you and your insurance company that could be settled in court or through arbitration.
How Many Americans Are Considered Underinsured?
There aren’t any hard statistics on how many Americans are underinsured, but 12.6% of motorists were uninsured in 2019, according to a 2021 study released by the Insurance Research Council.
Is There Other Insurance That Could Pay for My Accident Medical Bills?
That depends on your state of residence, circumstance, and insurer. Your medical bills could be paid by your health insurance company. If you signed up for medical payments coverage or personal injury protection (PIP) coverage, your auto insurance company might also use these types of coverages. PIP is similar to medical payments auto insurance, but also may cover lost wages or other non-medical costs.
What Is the Difference Between Uninsured and Underinsured?
Uninsured motorists don’t have any type of auto insurance. They may have allowed their policy to lapse, didn’t pay on time, or never took out insurance. Underinsured motorists may have insurance—just not enough to cover the damage they’ve caused.