What Does It Mean To Be Underinsured?
You've probably heard of uninsured motorists, or drivers who don't have any vehicle insurance. But what about uninsured drivers? Are you among the thousands of people who are underinsured or do not have enough insurance?
Causing an accident as an uninsured driver or being hit by an uninsured driver can result in a costly situation. We'll look at the definition and examples of being uninsured in this section.
Definition and Examples of Being Underinsured
The term "underinsured" can vary depending on the circumstances of a collision. This term frequently refers to your policy's inability to fully pay for the damages claimed due to low maximum limits. To put it another way, your policy falls short.
You may believe you are not at risk of underinsurance because you have complied with state law by enrolling in a policy that meets the state's minimum insurance requirements. This is understandable, but state minimums can differ greatly and may not account for the worst-case scenario.
For example, in Connecticut, the state minimum for insurance is $25,000 per person/$50,000 per accident, while in Maine, the minimum is $50,000 per person/$100,000 per accident.
- If you live in a state where the minimum liability limit is $25,000 and the person you hit has hospital bills and other claims totaling $50,000, you may be an underinsured motorist.
Even if you took out more than the state's minimum—say, $50,000—but the injured person's lost wages, physical therapy, and other expenses total $75,000, you may be underinsured by $25,000.
How Being Underinsured Works
You may be putting yourself at risk every time you get behind the wheel if you are underinsured. If you are involved in an accident and cause damage that exceeds your policy limits, the other person may sue you in court for the difference between your policy's payout and the actual costs, which could lead to bankruptcy.
If the other driver has uninsured/underinsured motorist coverage, their insurance company may pay the difference between the payout from your policy and the actual costs. However, relying on the other driver to cover your risk is probably not a good idea.
How Underinsured Motorist Insurance Works
If you are a driver involved in an accident with an underinsured motorist, hopefully your policy includes uninsured/underinsured motorist coverage, also known as "UI" or "UIM." The coverage helps to cover the gap between the driver's policy limits and the damages to your vehicle or body. Underinsured motorist coverage may include the following, depending on the type of coverage you have:
- Medical bills
- Lost wages
- Pain and suffering
- Car repairs
- Funeral services
Underinsured/uninsured motorist coverage is required in some states, including Nebraska and Minnesota, but not for property damage. If an uninsured driver destroys your tulip garden and garage, you are unlikely to be able to recover those costs. Vermont and Virginia, on the other hand, require coverage for property damage caused by an uninsured motorist.
Before your insurance company will pay your claim under underinsured motorist coverage, you will most likely have to pay your deductible or the amount you agreed to pay in advance if you are in an accident. There may also be strict time limits for filing an underinsured motorist claim with your insurance company—for example, it may need to be filed within 30 days. After you submit your medical or property documentation, your insurance company will review the claim and reach an agreement with you.
For an underinsured claim, you may be able to use a "stacking" strategy in some states. You can combine maximum limits for multiple insured vehicles or policies using this method. As a result, you can "stack" two $25,000 underinsured motorist policies for a $50,000 limit.
Alternatives to Being Underinsured
Speak with an agent or review the state limits to avoid being underinsured. You should have enough coverage to pay any claims resulting from an auto accident that you caused.
If you have a lot of money to protect, you should think about getting an umbrella policy. An umbrella policy effectively raises your limits above the maximum provided by your insurance company. You may be able to add uninsured/underinsured motorist coverage to your umbrella policy, increasing the limits of your coverage, depending on your insurer.
You can obtain uninsured/underinsured motorist coverage to protect yourself from the damages caused by an uninsured driver. If you live in a state where it is not legally required, these are typically sold in addition to your policy.
Frequently Asked Questions (FAQs)
How long does it take to resolve an underinsured motorist claim?
Some claims for underinsured motorists may take longer to evaluate and settle than others. These delays may be caused by the time it takes to determine the final costs of medical treatments and property repairs based on the length and severity of the treatments. There may also be settlement disagreements between insurance companies or between you and your insurance company that need to be resolved in court or through arbitration.
How many Americans are considered underinsured?
There are no hard numbers on how many Americans are underinsured, but according to a 2021 study released by the Insurance Research Council, 12.6 percent of motorists were uninsured in 2019.
Is there other insurance that could pay for my accident medical bills?
This is determined by your state of residence, your circumstances, and your insurer. Your health insurance company may pay your medical bills. If you have medical payments or personal injury protection (PIP) coverage, your auto insurance company may use these types of coverages as well. PIP insurance is similar to medical payments auto insurance, but it may also cover lost wages or other non-medical expenses.
What is the difference between uninsured and underinsured?
Uninsured drivers do not have any form of auto insurance. They may have let their policy lapse, failed to pay on time, or never purchased insurance. Underinsured drivers may have insurance, but it is insufficient to cover the damage they have caused.