State laws require vehicle owners to carry a minimum amount of car insurance or otherwise be able to show financial responsibility in case of an accident. And because car insurance coverage can be expensive, many drivers buy just enough insurance to comply with their state's law. This means if an underinsured driver caused your car accident, there might not be enough insurance to cover the full amount of your damages. This is where underinsured motorist coverage comes in:
- Your own underinsured motorist (UIM) insurance provides protection when the at-fault driver doesn’t have enough insurance to cover your injuries, lost income, pain and suffering, and other losses.
- Underinsured coverage requires you to make two claims: one against the other driver and one against your own insurance company.
- UIM is an add-on to most car insurance policies—but is required by law in some states.
- There are different types of underinsured motorist insurance; most UIM covers bodily injuries; other variations cover property damage.
- If you own more than one car, you may be able to “stack” your underinsured motorist coverage and claim a higher amount if you are hit by an underinsured driver.
What Is Underinsured Motorist Coverage?
Underinsured motorist coverage is just what it sounds like: insurance protection that you buy in case you're injured by a driver who does not carry enough insurance to pay for all your losses after a car accident.
Underinsured motorist coverage is usually an add-on to your car insurance policy. Typically, the at-fault driver must fully compensate anyone who suffers injuries, vehicle damage, and other losses after a crash. This is usually done through insurance, but the process may include a combination of collecting the other driver’s policy limits, then filing a lawsuit against them for the difference, if they have sufficient assets.
If the at-fault driver’s liability coverage limits are lower than the fair value of your car accident losses, and the at-fault driver doesn't have much in the way of assets, then your underinsured motorist coverage would kick in to cover the difference.
For example, let’s say you're in an accident with another driver who has $250,000 in liability coverage, and you sustained $350,000 in damages, leaving a $100,000 difference. If you bought $350,000 in underinsured motorist coverage, you could make a claim against your insurance company for the difference.
Underinsured motorist coverage shouldn't be confused with uninsured motorist coverage. These two types of insurance are similar, and may be sold as a bundle, but they're not the same.
With underinsurance coverage, if you are hit by a driver who does not have enough insurance to cover the cost of your damages, you will have to make two claims: one against the other driver and one against your own insurance company.
With uninsured motorist coverage, the driver who hit you has no insurance at all, and you only file one claim with your insurance company. Learn more about what happens when you're hit by an uninsured driver.
What Does Underinsured Motorist Coverage Cover?
First, like other types of insurance, underinsured motorist coverage may cover two different types of damages: bodily injury damages and property damages. Most often, UIM applies only to "bodily injury," meaning it pays for the medical bills, lost wages, and pain and suffering damages you and your passengers incur in an accident caused by a driver who does not have enough insurance.
Usually available as distinct from standard UIM, underinsured motorist property damage coverage pays for any vehicle damage caused by an uninsured driver. This type of coverage could help pay for remaining repairs, up to policy limits. It could also help to pay a collision coverage deductible, rental car costs, or other out-of-pocket expenses.
Some states require both of these kinds of coverage. In other states, you may have a choice to buy either or both (separately for each car you're registering).
After a car accident, if you have underinsured motorist coverage, once you have settled a claim with the other driver’s insurance company, you may be able to negotiate with your own insurance company about how much more your case might be worth, and collect up to your underinsurance policy limits. However, any medical payments coverage you have collected from your own insurance company will be deducted from the amount you collect through your underinsurance coverage.
Let's look at another example to understand how this might work. Assume that, to pay medical bills right after an accident, you collect $2,000 from your own insurance company under the medical payments coverage of your policy. Several months later, you settle your car insurance claim against the other driver for $15,000, which was the limit of the other driver’s liability coverage.
Your own underinsurance coverage has $50,000 policy limits. You convince your own insurance company that your claim is worth a total of $25,000. Under your underinsurance coverage, you can collect an additional $8,000—the $25,000 total value of your claim minus the $15,000 you collected from the other person’s liability insurance, and minus the $2,000 medical payments.
A note of caution, before you settle with the other driver’s insurance company, make sure you understand and comply with the terms of your underinsurance coverage policy—some policies, for example, may require you to get your insurance company’s consent before you settle with the other driver.
Benefits of Underinsured Motorist Coverage
As we've discussed so far, underinsured motorist coverage will help you if you're hit by an at-fault driver who doesn't have enough insurance or assets to cover your losses. It keeps you from having to make up the difference out of your own pocket.
And depending on your policy limits, another gap that underinsured motorist coverage might fill is the one between what your applicable medical payments coverage or personal injury protection (PIP) benefits may pay, and your total medical expenses—up to policy limits.
Also, if you have more than one car, you may be able to “stack” your underinsured coverage. Stacking is not allowed in every state, but where it's permitted, your underinsured motorist bodily injury coverage limit is “stacked” or multiplied by the number of cars on your policy. This means if you have underinsured motorist bodily injury coverage with limits of $75,000 per person and $150,000 per accident, and you added a second car, stacking would increase your limits to $150,000 per person and $300,000 per accident.
Collecting Under Your Underinsured Motorist Coverage
To collect under your underinsured motorist coverage, you must first show your insurance company that the other driver was underinsured. That might mean having the other driver’s insurance company write a letter that includes the policy limits for that person’s liability coverage, and a statement that you have settled your third-party car insurance claim with that company for an amount equal to those policy limits.
You might not need to make a special request for this kind of letter. When you negotiate your case with the other driver’s insurance company, the documents you exchange in finally settling the claim may already include the information you need.
Which States Require Underinsured Motorist Coverage?
State laws vary regarding mandatory requirements for uninsured (UM) and underinsured (UIM) motorist coverage. Check the current guidelines in your state. You state's Department of Insurance, Department of Motor Vehicles, or a similar agency will have the most up-to-date information.
As of early 2022, according to the Insurance Information Institute, at least 13 states required some form of underinsured motorist coverage, including: Connecticut, Illinois, Maryland, Minnesota, Nebraska, New Jersey, New York, North Carolina, North Dakota, Vermont, and Virginia. And remember, even if your state doesn't require UIM coverage, you can always add it to your car insurance policy.
Will Making a UIM Claim Increase My Insurance Costs?
Even when an accident is not your fault, making a claim under your underinsured motorist coverage could increase your insurance costs. Two states–California and Oklahoma–prohibit rate increases in connection with not-at-fault-accident claims. In other states, a not-at-fault claim will typically lead to a smaller surcharge, compared with an at-fault claim. The best time to find out whether your rates will increase after a not-at-fault claim is before you file this kind of claim (or perhaps even before you purchase a car insurance policy).
Getting More Information and Legal Help
For more tips on understanding insurance coverage after a car accident, and in-depth information on what to expect at every step in your case, get How to Win Your Personal Injury Claim by Joseph L. Matthews (Nolo).
And if you’re thinking about filing a lawsuit after a car accident, you may want to consider talking with an attorney to make sure all your legal bases are covered and your rights are protected. Learn more about how a car accident lawyer can help and what to discuss with a car accident lawyer at your first meeting.