Since car insurance can be expensive, many drivers only buy the minimum coverage required by state laws. Just enough coverage to drive legally.
This means that drivers are underinsured. If they cause an accident, their minimum coverage will not be enough to pay the medical expenses and/or property damage of the other parties.
Having underinsured motorist coverage will benefit you in this situation. Your costs might not be covered by another driver’s policy, but you’ll be protected with underinsured motorist coverage (UIM) when you’re in an accident that’s not caused by you. As a result, you won’t have to worry about having to pay out of pocket for any damage.
So what is underinsured motorist coverage and how can it help you?
What is underinsured motorist coverage?
Underinsured motorist coverage provides protection for you in an accident if the at-fault driver injures you or damages your car, but the liability limits on their policy are too low to cover all your expenses.
To be considered underinsured, the other driver’s liability limits have to be lower than yours.
UIM refers to separate but similar coverages:
Underinsured motorist bodily injury coverage
This covers medical expenses, lost wages, injury-related expenses, and pain and suffering. This coverage doesn’t just cover you. It protects people under your policy too. This includes family members in other cars, any drivers you’ve given permission to use your car, and passengers in your insured cars.
Underinsured motorist property damage coverage
This coverage pays for any damages to your car by a driver with insufficient insurance in the event of an accident.
How does underinsured motorist coverage work?
For example, let’s say that you are in an accident that causes you a serious injury and another driver is at-fault. If the driver has low liability coverages, their coverage will pay for some of your medical expenses but not all of it.
If you have UIM coverage, this would cover you for the rest of your medical expenses.
Typically, underinsured drivers only purchase the minimum coverage that’s required by law, which in some states really isn’t that much. For instance, car insurance in California only requires drivers to carry $15,000 per person and $30,000 per incident of bodily injury liability insurance.
Is underinsured motorist coverage required?
Underinsured motorist bodily injury coverage is required in 14 states:
- New Jersey
- North Carolina
- North Dakota
- South Dakota
Underinsured motorist property damage coverage is only required in 4 states:
- New Hampshire
- Washington, DC
How much underinsured motorist coverage do I need?
Depending on which state you live in, the minimum coverage limits vary. Despite this, the safest choice you can make is always purchasing more than the state’s minimum limits.
As a general rule, your underinsured motorist bodily injury coverage should match your liability limits. This way, you’re covered for just as much as you’ve chosen to insure for someone else.
If you have Personal Injury Protection (PIP) or MedPay, this would cover your medical expenses if you were injured in an accident. But having UIM would mean that after you exhausted your PIP limits, your remaining medical expenses would be covered. Therefore, you wouldn’t have to pay out of pocket.
As for underinsured motorist property damage, this is completely up to you. Typically, people choose a limit that is close as possible to the value of their vehicle. Although if you already have collision coverage, you don’t need to purchase UIMPD because it would be redundant.
Stacked underinsured motorist coverage
Essentially, stacked insurance increases your underinsured motorist coverage limits in relation to how many vehicles you’ve insured.
What this does is it enables you to combine the coverage limits you have on each vehicle under that one policy. In other words, you can claim a higher amount in the event that you’re hit by an underinsured driver.
Is underinsured motorist coverage worth it?
Of course, it’s up to you whether you want to purchase it for the peace of mind it offers.
At any rate, it’s a good idea to have since it’s inexpensive. Generally, it doesn’t add too much to what you’re probably already paying for car insurance.
Although it varies by city and state, on average you can expect to pay around 5% of your annual car insurance premium for the coverage. You should really only consider skipping it if you can’t afford insurance with it on your policy.
But it is recommended to have since you would be covered for medical expenses and/or damage to your car without having to pay out of pocket after an accident.
Uninsured vs underinsured
Uninsured motorist coverage works in a similar manner to underinsured motorist coverage. As a result, they are often offered as a package by insurers.
Uninsured coverage means that your insurer will cover certain costs in the event that you’re in an accident and the at-fault driver doesn’t carry liability insurance. And with this policy, you are also covered in hit-and-run accidents.
Uninsured coverage comes with bodily injury and property damage coverage as well.
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