Understanding Uninsured & Underinsured Motorist Coverage

This article will explain the significance of these coverages by discussing their functions, using likely scenarios for examples, and providing possible consequences of having too little coverage. It will discuss minimum state limits and how to avoid being an Underinsured Motorist yourself. It will also discuss what to look for when buying these coverages.

What is the Difference Between an Uninsured Motorist (UM) and an Underinsured Motorist (UIM)?

An Uninsured Motorist is just that: someone with no auto insurance. Statistics show that 1 out of every 7 drivers (14% of drivers) in the US does not have any insurance. That’s over 45 million uninsured drivers. Alarming as this is, your Uninsured Motorist coverage will step in and act like the other party’s insurer in the event of a collision with someone uninsured. So if the other party was at fault, your insurer will pay you, up to your Uninsured Motorist coverage limit, as if they were the other party’s insurer.

An Underinsured Motorist is someone driving with insufficient levels of liability/property coverage. The Underinsured Motorist coverage comes into play when the other party is at-fault for the accident, and their insurance policy limit isn't high enough to cover everything they’re liable for. Like the Uninsured Motorist coverage, Underinsured Motorist coverage then steps in to act like the other party's insurer to pay for the damages that the other party can't cover, up to your Underinsured Motorist coverage limit. 

While an Uninsured Motorist is easily defined, determining whether you are an Underinsured Motorist or not is a hard thing to do until you cause an accident. Determining if you have a sufficient amount of coverage is entirely dependent on the severity of the accident you cause. For example, if you cause a simple fender bender, you might only be liable for a few hundred dollars. That's to fix the bumper and for a chiropractic session for the person you hit. However, a serious accident involving multiple people could easily add up to be hundreds of thousands of dollars!

The Problem with Minimum State Limits

The state of Nebraska has a minimum limit of liability every driver must have to be considered an 'insured driver'. That requirement is a split limit of $25,000 of bodily injury per person, $50,000 total bodily injury, and $25,000 property damage liability (often notated as "25,000/50,000/25,000" or "25/50/25"). While those limits are all you need to be a state-approved 'insured driver', think of the risk you're taking with those low limits:

• You hit a Lexus: luxury cars take luxury parts, along with costly import or dealer service. Even a relatively minor accident might not be covered by the $25,000 for property damage.

• You hit a car with three people in it: Let’s say each one of the other car’s occupants receives $20,000 of medical care. That still leaves you with $10,000 out-of-pocket. ($50K of total body injury insured, with 3 people x $20K = $60K, leaving $10K uncovered) Now imagine a more severe accident with a small sedan that has five people stuffed into it!

• You get in a serious wreck with a sports car with only one person in it: You destroy their new Corvette, which leaves you out-of-pocket roughly $25,000 for the property. Their spinal surgery and physical therapy adds up to $150,000. That’s $125,000 of bodily injury that you’re still liable for. 

What Happens if I Do Not Have Enough Liability?

In the minimum state limit examples, the amounts not covered by your insurance would be completely up to you to cover. In most cases, you can expect a court date to determine negligence and how much you owe the other party. The amount you owe will most likely be taken in the form of garnished wages or other means until things are evened out.

But What If They Have Underinsured Motorist coverage?

If they do, their insurance company is going to step in and take care of all of their immediate bills on your behalf, since you were driving without proper coverage (at least, 'improper' for the accident you caused). The other party's insurance company will come back and sue you for everything you rightfully owe (this is called Subrogation), so refer to the previous section. (Note that in the opposite situation where you're not the one at fault, if your insurer pays you through UM or UIM, your insurer will sue the other party to make them pay for what they owe [Subrogate them])

What Should I Look for When Buying UM/UIM Coverage?

To protect yourself from a hit-and-run or not-at-fault accidents where the other driver doesn't have/doesn't have enough insurance, you'll need UM/UIM coverage. Typically, UM/UIM is sold as a single coverage, however, it often only covers your bodily injury. If you do not have Comprehensive and Collision coverage on your car, make sure UM/UIM for property damage is covered, or see if it can be endorsed to the basic UM/UIM coverage.  

How Do I Avoid Being an Underinsured Driver?

Accidents are accidents; they’re statistically going to happen to everyone. You never know if the accident is going to be a simple scuff in the parking lot, or a catastrophic event. Moreover, there is technically no way to know that you will or won't be an Underinsured Driver. However, you can take a few simple precautions that will severely limit your chances of being Underinsured: through higher limits on your auto policy, safe and defensive driving, and an umbrella policy covering excess damages, you can drive knowing you're protected for almost anything.  

What are These Precautions Going to Cost Me?

Defensive driving is free, saving you from accidents and maybe even traffic tickets along the way. Insurance wise, to bump up the liability limits from minimum level (25/50/25) to $300,000 across the board (300/300/300) is typically not very much, often costing and extra $100 or so per year. Likewise, a $1,000,000 Umbrella policy usually costs around $200 per year, and the Umbrella policy will give you additional liability coverage to your auto policy and your Home/Renter's policy! Excess liability is extremely cheap, especially when you consider what could happen without it!

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Medical Payments—Not Always What You'd Expect

Everyone has seen the ‘Medical Payments’ section on their homeowners,  or Auto policy, but what does it really mean? Does it cover my medical expenses if I get in a car crash? Does it mean that I only have coverage for X amount of dollars for other people's medical expenses? Does it cover my family's medical expenses?

The Homeowner’s Policy & General Liability Policy:

The Medical Payments (also referred to as 'Medical Expenses') section of your homeowner’s or General Liability policy, is to cover medical expenses of someone who is accidentally injured. The caveat with it is that Medical Payments coverage does not apply to you or your family getting hurt, because that should be covered by your health insurer. For businesses, the Medical Payments coverage would not apply to you or your employees, as that should be covered by Workers' Compensation.

The Medical Payments coverage comes into play when there is no proof of negligence, but a visitor is hurt. In this situation, your insurer will pay the medical expenses required to fix up the injured person, hopefully keeping you out of court. This coverage can be substantial, as litigation can be very expensive, not to mention time consuming. However, if you had negligently hurt someone, your policy is going to pay for their medical expenses, and any litigation expenses that are incurred. Medical Payments is simply a tool to prevent you from going to court in the first place.

Here are two basic examples:

—Your  guest trips over a rug, fracturing their arm. It was completely accidental, but your insurer will pay up to your Medical Payments policy limit to fix them up in hopes of keeping you out of court.

—A pedestrian cuts through the corner or your yard and slips on a child’s toy. Once again, your insurer is going to pay up to the policy limits to fix that person up, and hopefully keep you out of the courtroom.

As you can see, this could play out a million different ways, but trying to establish blame in the courtroom is time consuming and costly for everyone involved. This small, yet potentially huge, coverage can save you time in court, and can keep a small accident from becoming a multi-thousand dollar claim on your record.

The Auto Policy:

The concept is almost reversed in auto insurance. Regardless of your negligence in an accident, your insurer is going to pay up to the Medical Payments limit for each person in the car. So when you're the driver and have an accident, it'll pay for the medical expenses of you and every passenger in the vehicle. This coverage also extends to when you are a passenger in someone else's car, or if you are hit by a vehicle while on-foot. 

The Auto policy's version can be very beneficial to have if you are the passenger during an accident or hit as a pedestrian. This is especially so if the driver doesn't have Medical Payments coverage (or auto coverage at all!). Alternatively, the driver might have an Auto policy, but they might not have high enough limits to fully cover your injuries!

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.