What is Underinsured Motorist Protection?

What Is Underinsured Motorist Protection

What Is Underinsured Motorist Coverage/Protection?

Imagine you are sitting in your car stopped at a red light. Out of nowhere, you hear a loud crash. Your world goes topsy-turvy, and all of the sudden you find yourself spun around, in a demolished car, in excruciating pain. A driver who was distracted by his cell phone just rear ended you at full speed. He never saw you stopped before him. Thankfully, you have underinsured motorist protection.

You suffer severe damage to your spine. You are going to miss 6 months of work, and more down the road. You will need multiple surgeries and you will suffer pain for the rest of your life.   The other bad news: The driver who hit you had only $50,000 of auto bodily injury liability insurance coverage, and he has no meaningful assets.

So now what? Underinsured Motorist Coverage – that’s what. Underinsured Motorist Coverage, and it’s fraternal twin sister Uninsured Motorist Coverage, are two of the most important coverages you can buy.   These two coverages protect you against harm done to you by others. Underinsured Motorist is intended to protect you when another motorist negligently injures you with his auto, but his insurance limits are not sufficient to cover your damages.

In the above example, your damages are significant, and it is likely that a court would award you $1,000,000 or more for you medical bills, loss of wages, and pain and suffering. If your damages were $1,000,000, and you had purchased $1,000,000 of Underinsured Motorists Coverage, you could potentially collect $50,000 (the limit of liability) from the negligent driver’s insurance policy and another $950,000 from your own insurance policy.

What Is The Most I Can Collect From My Insurance Company Under My Underinsured Motorist Coverage?

The limits for Underinsured Motorist Coverage can either be structured with just a single per accident limit or with a per person limit and a maximum per accident aggregate. Beyond the limits of insurance, how much you may be able to collect depends upon your insurer’s policy wording, the circumstances of the loss, and the amount of damages.

Some insurance companies use a narrow coverage grant for Underinsured Motorist Coverage and others use a broad coverage grant.   With the narrow coverage grant, your policy will pay you no more than the limit of insurance you carry for Underinsured Motorist Coverage minus the automobile liability limit of insurance purchased by the party who negligently caused your damage.

Narrow Coverage Grant Example: The other driver was 100% at fault and caused injuries to you.   Your damages are $750,000.   You purchased $500,000 of Underinsured Motorists Coverage, and the negligent driver carried an automobile insurance policy with a bodily injury liability limit of $250,000.   His insurance policy will pay you $250,000 and your insurance policy will pay you $250,000 (The limit you purchased minus the limit of insurance that the negligent party had).   However, as your damages were $750,000, you came up short $250,000.   Even though you purchased a limit of $500,000, your policy is only paying you $250,000.

With the Broad Coverage Grant, your insurer will pay you the amount of the damages caused by the negligent party minus that party’s limit of insurance (not to exceed your limit of insurance).

Broad Coverage Grant Example: We will use the same facts. The other driver was 100% at fault and caused injuries to you.   Your damages are $750,000.   You purchased $500,000 of Underinsured Motorists Coverage, and the negligent driver carried an automobile insurance policy with a bodily injury liability limit of $250,000.   His insurance policy will pay you $250,000 and your insurance policy will pay you $500,000 (The amount of your damages minus the limit of insurance that the negligent party had).

As coverage varies from state to state and insurer to insurer, you will want to consult your insurance agent and will want to read your policy carefully.

How much Underinsured Motorist Limit can I buy?

First of all, your insurer will not let you buy more than the auto liability limit that you purchase.   If you purchase a $100,000 limit for automobile bodily injury liability, your insurer will not let you purchase a higher limit than that for Underinsured Motorists Coverage. If the highest limit your insurer will sell for auto liability if $300,000, then that is likely the highest limit you can get from them on Underinsured Motorists Coverage.

However, you may be able to purchase even more limit on an umbrella policy.   You may be able to purchase an umbrella policy from either your insurer or another company that is willing to issue a mono-line umbrella policy.   That insurer may be willing to include coverage for Underinsured Motorists, providing you with still more limit.

Can I purchase Uninsured Motorist Coverage without buying Underinsured Motorists Coverage?

It will vary by state and by insurer. These two coverages are sometimes sold separately and are sometimes bundled together.   It is generally recommended that, where available, you buy them together. In some states, it is mandatory to offer them together.   In these states, when you purchase Uninsured Motorist coverage, you automatically also get Underinsured Motorist coverage.

How Much Underinsured Motorist Coverage Should I Buy?

As mentioned earlier, Underinsured Motorist Coverage and Uninsured Motorist Coverage protect you. Some pretty horrible things can happen in a car accident. You might end up needing a lifetime of skilled nursing services as a result of a serious car accident.   You will need to decide how much is enough when you consider the medical care, lost wages, and pain and suffering. You should at least consider as much limits as you have in bodily injury liability coverage.

Who Does Underinsured Motorist Coverage Apply To?

If you purchase the coverage, it generally protects not only you, but also your passengers and permissive users of your car.

This short article provides a quick summary of Underinsured Motorist Coverage.   How the coverage would actually respond depends on many factors, including which state the loss takes place in, the policy wording, and the individual circumstances.   Read your policy carefully. Should you have questions, seek the advice of a professional insurance agent or an attorney.   The examples used in this article only included injuries to one person.   When multiple people are injured, the examples can become much more complex.

Other Enhanced Insurance articles related to Car Insurance Coverage:

What Is a Car Insurance Deductible

What Is Personal Injury Protection Coverage

What Is Medical Payments Coverage

What Is Uninsured Motorist Protection

What Is Rental Car Insurance Coverage

What Is GAP Coverage?

How Much Is GAP Insurance?

Collision Insurance Coverage

Property Damage Coverage

Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.

While the majority of people want an agent involved in their purchase of insurance, many people want to see if they can save money by buying direct from the insurance company. Others want to try a direct quote to make sure the premium they’re now paying through their local agent is fair. If you want a quote for your coverage, click on the competitive quote button on the right side of this page.

Jim Ketterson is an insurance expert with more than 25 years of experience in the industry. He has served as a President of an insurance company, an insurance underwriter, and has held various roles in insurance company product management. He has his Chartered Property Casualty Underwriter designation and a MBA in Finance. The information he offers in his posts is general in nature and may not be appropriate, accurate, or applicable in all situations. Before making any important insurance decisions, you should seek the advice of a qualified insurance agent and discuss the particulars of your individual situation. Follow Jim on Twitter @MNinsurancePro

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