Uninsured and underinsured motorist coverage (usually abbreviated as UM/UIM) is a crucial aspect of any driver’s insurance portfolio.
Imagine the scenario where you’re involved in an accident only to find out the other party lacks adequate insurance to pay for the repairs to your car or your medical bills. This coverage serves as a critical safety net, ensuring you’re not left to shoulder significant financial burdens due to others’ lack of coverage.
In this Car Insurance 101 article, we will explore how this coverage functions, highlight its benefits, and address some of the common questions and concerns that arise. While it’s a valuable component of your auto insurance, it’s important to maximize its utility without duplicating existing coverage.
What exactly is UM/UIM coverage?
Uninsured and underinsured motorist coverage is like a safety net for your safety net. When you’re driving, having car insurance is a bit like wearing a seatbelt – it’s essential.
But what happens if you get into an accident and the other driver, who’s at fault, doesn’t have insurance or doesn’t have enough? That’s where uninsured and underinsured motorist coverage kicks in.
It’s designed to protect you financially if the other party can’t cover the damages or medical expenses due to inadequate insurance.
Uninsured Motorist Coverage
There are mainly two types of this coverage: Uninsured Motorist Bodily Injury (UMBI) and Uninsured Motorist Property Damage (UMPD).
UMBI covers you and your passengers’ medical expenses, lost wages, and sometimes pain and suffering when the at-fault driver has no insurance. It’s like having a backup plan for your health and well-being.
On the flip side, UMPD takes care of the damages to your car in the same scenario. It ensures your ride gets the care it needs without draining your wallet.
Underinsured Motorist Coverage
This steps in when the other driver’s insurance is there, but it’s just not enough to cover all the expenses. It covers the gap between what the at-fault driver’s insurance can pay and what you actually need to recover.
Understanding these coverages is crucial because it shields you from unexpected financial stress. It’s about making sure that an accident caused by someone else doesn’t end up costing you more than just inconvenience.
Whether it’s medical bills for you and your passengers or repairs for your vehicle, uninsured and underinsured motorist coverage ensures you’re not left footing the bill when others fall short. It’s a layer of protection that, while you hope never to need, you’ll be glad to have if the time comes.
How does UM/UIM coverage work?
Let’s get into the nitty-gritty of how uninsured/underinsured motorist coverage really works when rubber meets the road, so to speak.
We created two scenarios to illustrate how both UM and UIM coverages can protect you from injuries and damages.
Scenario 1: The Uninsured Driver
You’re stopped at a red light, and wham, someone rear-ends you. As it turns out, the driver is not insured.
For this example, your UM coverage policy limits are set at $50,000 for bodily injury per person and $25,000 for property damage. Now, let’s add some numbers to the mix for medical and repair costs.
After the accident, you’re feeling pretty shaken up and decide to go to the ER to get checked out. The diagnosis? Whiplash, a common but painful result of rear-end collisions.
Between the emergency room visit, X-rays, and follow-up visits with a specialist for physical therapy, your medical bills start to pile up.
Medical expenses associated with this accident:
- ER visit: $1,500
- X-rays: $200
- Physical therapy sessions (10 sessions): $2,000
- Specialist follow-up visits (2 visits): $400
That brings your total medical bills to $4,100. Thankfully, your UM coverage includes bodily injury, which covers these expenses up to your policy limit of $50,000.
Now, let’s talk about your car. The rear bumper is significantly damaged, the trunk won’t close properly, and the rear light assembly is shattered.
After getting estimates from a couple of auto repair shops, you find out the cost to repair the damages will be roughly $3,500. This falls well within your property damage coverage limit of $25,000 under your policy’s UM coverage.
You file a claim with your insurance, providing them with the police report that confirms the other driver was uninsured, your medical bills, and the repair estimates for your car.
After your insurer reviews your claim, they approve the payouts under your UM coverage. You receive a check for $4,100 to cover your medical expenses and another for $3,500 to repair your car, without ever having to dip into your own pocket.
In this scenario, UM coverage acts as your financial shield, covering both medical and property damage bills caused by an uninsured driver.
Without it, you might have been left to navigate a financial headache on top of recovering from the accident. With the right coverage in place, however, you’re able to focus on recovery, knowing that the financial aspects are taken care of.
Scenario 2: The Underinsured Driver
In this example, you’re cruising down a highway when suddenly, a car changes lanes without seeing you, sideswiping your vehicle. Both cars pull over, and it’s clear the other driver is at fault.
However, after exchanging information, you learn their liability coverage is far below what’s needed to cover the damages and medical expenses – the classic case of an underinsured driver.
Suppose your UIM coverage limits are $100,000 for bodily injuries per person and $50,000 for property damage.
The medical costs are as follows:
- Emergency room visit due to a concussion and minor lacerations: $2,500
- CT scans and other diagnostic tests: $1,000
- Follow-up visits and medication: $500
- Physical therapy for neck and shoulder pain: $3,000
- Total medical expenses amount to $7,000
The damage to your car is estimated to be:
- Bodywork for side panel damage: $4,000
- Paint job to match the original finish: $1,200
- Replacement of the side mirror and window: $800
- Alignment and other mechanical repairs: $1,000
The total cost for repairs to your vehicle comes to $7,000.
The at-fault driver’s insurance has a liability limit of $15,000 for property damage and $25,000 for bodily injury, which is not enough to cover your total costs. Here’s where your UIM coverage comes into play.
After the accident, you file a claim with your insurance, submitting the necessary documentation, including the police report, medical bills, and car repair estimates.
Your insurer reviews the claim and determines that the at-fault driver’s insurance will cover $25,000 for your medical expenses and $15,000 for your car repairs. However, this leaves you $2,000 short on medical expenses and completely out of pocket for the car repairs.
Thanks to your UIM coverage, your insurer steps in to cover the shortfall from the other driver’s policy, providing you with the additional $2,000 needed for your medical expenses and covering the full $7,000 for your car repairs.
In this scenario, your UIM coverage safeguards you against the financial risks posed by drivers with inadequate insurance, covering the gap between their coverage limits and your actual costs.
It’s a critical layer of protection that ensures you and your property are fully covered, allowing you to recover without bearing the burden of unexpected expenses.
The primary benefits of having adequate UM/UIM coverage
Having adequate Uninsured Motorist (UM) and Underinsured Motorist (UIM) coverage offers a multitude of benefits that can significantly mitigate the financial and emotional stress following an accident.
- Financial Protection Against Uninsured Drivers – UM coverage shields you from out-of-pocket expenses for medical bills, lost wages, and pain and suffering when the at-fault driver has no insurance.
- Gap Coverage for Underinsured Drivers – UIM coverage fills the financial gap left by at-fault drivers whose liability limits are too low to cover your total loss, including vehicle repairs and medical treatments.
- Coverage for Hit-and-Run Incidents – UM coverage can provide compensation for injuries and damages resulting from hit-and-run accidents, ensuring you’re not left financially vulnerable.
- Protection for Passengers – UM and UIM coverage extend to passengers in your vehicle, offering them protection and coverage for medical expenses resulting from an accident with an uninsured or underinsured driver.
- Flexibility and Peace of Mind – Knowing you have UM/UIM coverage provides peace of mind that you’re protected financially, regardless of the insurance status of the other driver involved in the accident.
- Coverage in Multiple Scenarios – UM/UIM coverage isn’t just for accidents with other cars. It can also apply to incidents involving pedestrians, cyclists, and hit-and-run situations where the at-fault party is unknown or uninsured.
- Legal Representation – In cases where legal action becomes necessary to recover costs from an uninsured or underinsured driver, having UM/UIM coverage means your insurer may provide legal representation, saving you from potential legal fees.
- Avoiding Financial Hardship – Adequate UM/UIM coverage prevents significant financial hardship that can result from medical treatments and vehicle repairs, especially important for those without health insurance or with high deductibles.
- Comprehensive Protection for Yourself – Unlike liability coverage, which protects other drivers from your actions, UM/UIM coverage is one of the few parts of your auto insurance that specifically protects you, your family members, and your assets.
- Affordable Supplement to Your Policy – UM/UIM coverage is generally an affordable addition to your auto insurance policy, especially considering the extensive protection it offers against uninsured and underinsured drivers.
- Ease of Claim Process – Filing a claim with your own insurance for UM/UIM benefits can be more straightforward and within your control, compared to pursuing a claim against an at-fault driver’s insurance company.
- Adaptability to Your Needs – You can choose UM/UIM coverage limits that fit your financial situation and risk tolerance, giving you control over the level of protection you desire.
Incorporating adequate UM/UIM coverage into your auto insurance policy ensures that you are well-protected against the uncertainties of the road, providing a safety net that guards against the financial impact of accidents with underinsured or uninsured drivers.
Common concerns and pitfalls with UM/UIM insurance
While Uninsured Motorist (UM) and Underinsured Motorist (UIM) coverage provide essential protection, navigating this aspect of your auto insurance requires awareness of potential concerns and pitfalls.
Understanding these can help you make more informed decisions about your coverage. Here are some of the top considerations:
- Coverage Limits – One common pitfall is selecting UM/UIM coverage limits that are too low. This might save you a few dollars on your premium, but it could leave you under protected in the event of a serious accident. It’s crucial to choose limits that reflect your financial situation and risk exposure.
- State Variations – UM/UIM coverage requirements and options vary significantly by state, which can be confusing. Some states require this coverage, while others do not. Misunderstanding your state’s regulations could lead you to either overlook necessary coverage or over-insure unnecessarily.
- Overlap with Health Insurance – Some drivers overlook UM/UIM coverage, believing their health insurance will cover all medical expenses after an accident. However, health insurance might not cover all accident-related costs, such as long-term rehabilitation or lost wages, which UM/UIM insurance would cover.
- Deductibles and Exclusions – Some UM/UIM policies come with deductibles, which means you’ll need to pay a certain amount out of pocket before coverage kicks in. Additionally, there might be exclusions that limit coverage under specific circumstances. Not understanding these details can lead to unexpected out-of-pocket expenses.
- Underestimating the Risk of Uninsured Drivers – Many drivers underestimate the likelihood of getting into an accident with an uninsured or underinsured motorist. This complacency can result in opting out of UM/UIM coverage or choosing lower limits, potentially leading to significant financial strain.
- Stacking UM/UIM Coverage – In some states, you can “stack” UM/UIM coverage across multiple vehicles on the same policy, increasing your total coverage amount. However, not all states allow stacking, and not all policies are clear about how stacking works, leading to confusion in the event of a claim.
- Delayed Claims Process – Filing a UM/UIM claim can sometimes lead to a longer settlement process. Since your insurance company steps into the shoes of the at-fault driver, they may take extra time to investigate the claim, prolonging the time it takes to receive compensation.
- Premium Increases – Just like with other types of claims, filing a UM/UIM claim may result in an increase in your insurance premiums. This concern can deter some policyholders from using their coverage when needed.
- Misunderstanding Coverage Scope – There’s a common misconception about what UM/UIM coverage actually covers. For example, UMPD doesn’t cover hit-and-run accidents in some states. Misunderstanding the scope of your coverage can lead to surprises at claim time.
- Failing to Review and Update Coverage – As your life changes (e.g., buying a new car or moving to a new state), so do your insurance needs. Failing to periodically review and update your UM/UIM coverage can leave gaps in your protection.
Being aware of these concerns and pitfalls can guide you in selecting and managing your UM/UIM coverage more effectively. It ensures that you’re adequately protected without paying for unnecessary coverage or facing unexpected financial burdens after an accident.
How to choose the right UM/UIM coverage
We covered what UM/UIM coverage is, how it works, and the common pitfalls to avoid. But how do you choose the right amount of coverage on your car insurance policy?
Here’s a detailed guide to help you make a solid decision on how much UM/UIM coverage to buy:
1. Assess Your Risk Exposure
- Location – Consider the rate of uninsured drivers in your state or area. Higher rates might warrant higher UM/UIM coverage.
- Driving Frequency and Commute – More time on the road increases your exposure to risk. Daily commuters might need more robust coverage.
- Vehicle Value – If you drive a higher-value vehicle, ensuring you have enough coverage to repair or replace it in the event of an accident is essential.
2. Understand Coverage Limits
UM/UIM coverage limits are typically expressed in two numbers (e.g., $50,000/$100,000). The first number represents the maximum payout per person, and the second is the total payout per accident.
When buying this coverage, be sure to select limits that can adequately cover medical expenses and property damage in today’s dollars.
And remember, healthcare costs and vehicle repair expenses continue to rise over time. It’s essential to readdress insurance coverages periodically to ensure you are adequately protected.
3. Consider Your Financial Situation
- Assets to Protect – Higher coverage can protect your assets from lawsuits if the costs exceed the at-fault driver’s coverage.
- Budget Constraints – While it’s important to be adequately covered, ensure the premium fits within your budget. Balancing cost and coverage is key.
4. Evaluate the Benefits of Stacking
In states that allow it, stacking UM/UIM coverage multiplies your coverage limit by the number of vehicles on your policy. This can provide additional protection without a significant increase in premiums. Weigh the pros and cons based on your specific situation.
5. Review and Compare Policies
When it comes to Uninsured/Underinsured Motorist (UM/UIM) coverage, it’s not just about having protection—it’s about having the right kind of protection.
Different insurance companies can offer varying terms for what essentially appears to be the same coverage. This variability can significantly impact your financial security and peace of mind in the event of an accident with an uninsured or underinsured driver.
Here’s why reviewing and comparing policies is a step you can’t afford to skip:
- Coverage Differences – Some insurers might provide UM/UIM coverage that includes additional benefits, such as coverage for hit-and-run accidents or coverage that extends to you as a pedestrian or while biking. Others may have more restrictive policies with limited scenarios under which they’ll pay out.
- Deductible Variances – Pay attention to the deductibles. Some policies may require a higher deductible before coverage kicks in, which can influence your out-of-pocket costs in the event of a claim. Finding a policy with a lower deductible could mean more upfront costs in premium but less financial strain when you need to use the coverage.
- Limits and Extensions – Coverage limits (the maximum amount the insurer will pay for a single incident) can vary widely. Additionally, some policies may offer the option to “stack” limits across multiple vehicles on the same policy, effectively increasing your coverage amount. This option can be a game-changer for multi-vehicle households.
- Customer Service and Claims Process – The ease of filing a claim and the efficiency of the insurer’s customer service can greatly affect your experience. Look for insurers with high ratings for customer service and claims satisfaction. Reading reviews and asking for recommendations can provide insights beyond the policy specifics.
- Cost Comparison – While the cost shouldn’t be the only factor, it’s certainly an important one. Comparing the premiums for similar levels of UM/UIM coverage across different insurers can help you find the best value. Remember, the cheapest option isn’t always the best, especially if it comes at the expense of comprehensive coverage or reliable service.
To effectively review and compare policies, consider using online comparison tools, speaking directly with insurance agents, or consulting with an independent insurance broker who can offer unbiased advice.
This proactive approach ensures that you secure UM/UIM coverage that not only meets your needs but also offers the best possible value, setting a solid foundation for your financial protection on the road.
6. Regularly Review and Update Your Coverage
Life changes, such as moving to a new state, buying a new car, or changes in your financial situation, can affect your insurance needs. Regularly reviewing your policy ensures your coverage remains aligned with your current needs.
Adapting to Life Changes
Major life events can alter your risk profile and insurance needs. For instance, moving to a new state might not only change your risk of encountering uninsured drivers but also subject you to different insurance laws and requirements.
Similarly, upgrading to a newer, more expensive car increases the financial risk in the event of an accident with an underinsured motorist, possibly necessitating higher coverage limits.
Financial Shifts
Changes in your financial situation can also dictate adjustments in your insurance coverage.
If you’ve significantly increased your assets, you might need to enhance your UM/UIM coverage to protect those assets against potential lawsuits following a serious accident.
Conversely, if you’re looking to reduce expenses, you might review your policy to ensure you’re not over-insured, paying for coverage that exceeds your actual needs.
Evolving Risk Factors
As you age, your driving patterns might change, affecting your risk exposure.
Retiring, working from home, or changing jobs can all decrease the amount of time you spend on the road, potentially lowering your risk and adjusting your insurance needs accordingly.
Market Changes
The insurance market is constantly evolving, with new products and coverages becoming available that might better suit your needs.
Regular policy reviews are an opportunity to explore these options and ensure your coverage is leveraging the latest insurance innovations and offers the best protection at a competitive price.
Ensuring Adequate Coverage
It’s not uncommon for people to underestimate their coverage needs initially.
Regular reviews provide a chance to reassess your UM/UIM coverage in light of current vehicle values, medical costs, and your personal risk tolerance, ensuring your coverage is adequate to cover potential losses.
How to Review Your Coverage
Schedule a regular review of your insurance policies, such as annually or after any significant life event.
This review should involve checking your coverage limits, deductibles, and the specific terms of your UM/UIM coverage.
Consult with your insurance agent or a trusted advisor to discuss any changes in your life that might affect your insurance needs and to explore options for adjusting your coverage.
By making it a habit to regularly review and update your UM/UIM coverage, you can ensure that your insurance protection evolves alongside your life, providing peace of mind that you and your assets are adequately protected against the unpredictable nature of accidents with uninsured or underinsured drivers.
7. Factor in Your Health Insurance
While having health insurance is important, UM/UIM coverage can cover costs that health insurance might not, such as long-term rehabilitation or lost wages. Consider how both types of insurance work together to provide comprehensive protection.
Covering Gaps in Health Insurance
Even the best health insurance plans have their limits. They might not cover all types of accident-related medical expenses, such as long-term physical therapy, certain rehabilitation services, or experimental treatments.
UM/UIM coverage can step in to cover these gaps, ensuring you have access to the full spectrum of care needed for recovery without worrying about coverage limitations.
Deductibles and Co-Pays
Health insurance plans typically include deductibles and co-pays, which are out-of-pocket expenses you must pay before your health insurance starts paying.
After a serious accident, these costs can quickly add up. UM/UIM coverage can help manage these expenses, providing financial relief when you need it most.
Lost Wages and Earning Capacity
One of the significant benefits of UM/UIM coverage is its ability to compensate for lost wages if you’re unable to work due to injuries sustained in an accident.
Some policies even cover the loss of future earning capacity, something health insurance does not address. This aspect of UM/UIM coverage is crucial for maintaining financial stability during recovery.
Non-Medical Expenses
Accidents often result in non-medical expenses that health insurance won’t cover.
Here are some of the types of expenses that may be covered by your UM/UIM coverage that are not generally covered by health insurance:
- Lost wages due to time off work for recovery
- Loss of future earning capacity if you’re unable to return to your previous job or work at the same capacity
- Pain and suffering compensation for the physical and emotional distress caused by the accident
- Legal fees if you need to pursue legal action against the at-fault driver
- Funeral expenses in the event of a fatal accident
- Childcare expenses if you need additional help while recovering
- Home modification costs, such as ramps or stairlifts, if the injuries require changes to your living environment
- Transportation costs, including adaptations to vehicles for accessibility if injuries limit your mobility
Rehabilitation services not covered by health insurance, like certain types of physical therapy or alternative treatments
Coverage for Passengers
UM/UIM coverage extends protection to passengers in your vehicle, who might not have health insurance or whose coverage is insufficient.
This ensures that everyone in your vehicle has access to necessary medical care without the financial strain, regardless of their personal health insurance status.
The Synergy of Coverage
To maximize the benefits, it’s crucial to understand how your health insurance and UM/UIM coverage work together.
For instance, if your health insurance covers the initial medical costs, UM/UIM coverage can be used for expenses that exceed your health insurance limits.
It’s worth discussing with your insurance agent or a financial advisor how to coordinate these benefits effectively, ensuring seamless coverage that minimizes your out-of-pocket expenses.
Expert advice on UM/UIM coverage
Uninsured/Underinsured Motorist (UM/UIM) coverage is an overlooked coverage on a car insurance policy. It is often an afterthought and tacked onto the policy using the same liability bodily injury and property damage limits.
However, this coverage is a critical component of a comprehensive auto insurance policy, designed to protect you financially in the event of an accident with drivers who are either uninsured or lack sufficient insurance to cover your losses.
With the proliferation of inflation and exceedingly high car insurance rates, many drivers are forced to choose between paying their monthly car insurance or putting food on the table.
This perfect storm of low wages and high living costs is driving more and more people to forego car insurance and take the risk of driving while uninsured.
This is why UM/UIM coverage is more important now that it ever has been. State mandated minimum liability limits are not keeping up with inflation, and drivers can easily find themselves in an accident with medical or property damage bills well in excess of the other driver’s coverage.
UM/UIM is a relatively cheap coverage to add to your policy considering the benefit it provides. I recommend highly that drivers do not skimp on this coverage, and instead consider buying higher coverage limits. In the event that you need the coverage, you will be thankful that you have it.
During his career as an independent insurance agent, Ryan Grabenstein was appointed with Progressive, Allstate, Nationwide, Travelers, and many smaller regional and mutual companies. He has a Bachelor's degree in Finance from the University of Nebraska at Lincoln and Certified Insurance Counselor (CIC) personal and commercial lines training.