Underinsured Motorist Coverage Explained: What You Need to Know

What Is Underinsured Motorist Coverage

Underinsured motorist coverage, commonly abbreviated as UIM, is a type of auto insurance that protects you when you are injured in an accident caused by a driver whose liability insurance is insufficient to cover the full extent of your damages. While most states require drivers to carry minimum liability insurance, these minimums are often woefully inadequate to cover the costs of serious injuries. Underinsured motorist coverage fills the gap between the at-fault driver's policy limits and your actual damages.

For example, if you suffer $200,000 in damages from a car accident and the at-fault driver only has $50,000 in liability coverage, your underinsured motorist coverage could potentially cover the remaining $150,000, up to your own policy limits. Without UIM coverage, you would be left to absorb that $150,000 shortfall on your own or attempt to collect it directly from the at-fault driver, who may not have the personal assets to pay.

Understanding how underinsured motorist coverage works, when it applies, and how to maximize your benefits is essential for anyone who drives or rides in motor vehicles.

How Underinsured Motorist Coverage Works

UIM coverage is part of your own auto insurance policy and is triggered when the at-fault driver's liability coverage is not enough to pay for your damages. The mechanics of how UIM coverage works can vary by state, but the general process follows a predictable pattern.

Triggering UIM Coverage

Your underinsured motorist coverage is triggered when you are injured in an accident caused by another driver, the at-fault driver's liability insurance is insufficient to cover your damages, and you have UIM coverage on your own policy. In most cases, you must first exhaust the at-fault driver's liability coverage before your UIM coverage kicks in.

Calculating UIM Benefits

The way UIM benefits are calculated depends on whether your state follows an offset approach or a gap approach. In offset states, your UIM coverage is reduced by the amount you receive from the at-fault driver's insurance. For example, if you have $100,000 in UIM coverage and receive $50,000 from the at-fault driver, your UIM coverage would provide up to an additional $50,000. In gap states, your UIM coverage provides benefits up to its full limit regardless of what you receive from the at-fault driver. Using the same example, you could potentially receive up to $100,000 from your UIM coverage in addition to the $50,000 from the at-fault driver.

Filing a UIM Claim

To file a UIM claim, you typically need to settle with or obtain a judgment against the at-fault driver first, then submit a claim to your own insurance company for the remaining damages. Your insurance company will evaluate your claim and may negotiate the amount of UIM benefits payable.

Underinsured vs. Uninsured Motorist Coverage

It is important to understand the difference between underinsured motorist coverage and uninsured motorist coverage, as they serve different purposes.

Uninsured motorist coverage protects you when the at-fault driver has no insurance at all. This coverage applies in hit-and-run accidents where the at-fault driver cannot be identified, accidents caused by drivers who have no insurance, and accidents caused by drivers whose insurance has lapsed.

Underinsured motorist coverage, on the other hand, applies when the at-fault driver has insurance but not enough to cover your damages. Some states combine these coverages into a single policy provision, while others treat them as separate coverages.

State Requirements for UIM Coverage

Underinsured motorist coverage requirements vary significantly by state. Some states require drivers to carry UIM coverage, while others make it optional.

States That Require UIM Coverage

Approximately 20 states and the District of Columbia require drivers to carry underinsured motorist coverage. In these states, UIM coverage is automatically included in your auto insurance policy unless you specifically reject it in writing. Required coverage limits vary by state but typically match the state's minimum liability insurance requirements.

States Where UIM Is Optional

In states where UIM coverage is optional, your insurance company is required to offer it to you, but you can decline it. If you decline UIM coverage, you may be asked to sign a written rejection form. While declining UIM coverage reduces your premium, it leaves you vulnerable to significant financial losses if you are injured by an underinsured driver.

Recommended Coverage Levels

Regardless of your state's requirements, insurance experts generally recommend carrying UIM coverage with limits that match your liability coverage limits. If you have $250,000 in liability coverage, you should ideally have $250,000 in UIM coverage as well. Given the high cost of medical care and the prevalence of underinsured drivers, higher UIM limits provide better protection.

When Does UIM Coverage Apply

Understanding the specific situations in which your UIM coverage applies can help you make informed decisions about your insurance and your claims.

Car Accidents with Underinsured Drivers

The most common scenario for UIM claims is a car accident where the at-fault driver's liability coverage is insufficient to cover your medical expenses, lost wages, and other damages. This situation is more common than many people realize, as many drivers carry only the minimum required liability coverage.

Accidents Involving Multiple Vehicles

In multi-vehicle accidents, the at-fault driver's liability coverage may need to be split among multiple injured parties, leaving each person with less than the full policy limit. Your UIM coverage can help make up the difference.

Pedestrian and Bicycle Accidents

If you are struck by an underinsured driver while walking or cycling, your UIM coverage from your own auto policy may still apply. The specific rules vary by state and policy, so check your coverage details.

Accidents in Other Vehicles

Your UIM coverage may follow you when you are a passenger in someone else's vehicle or when you are driving a rental car. The applicability depends on your policy terms and state law.

How to File an Underinsured Motorist Claim

Filing a UIM claim involves several steps that differ from filing a standard liability claim.

Step 1: Settle with the At-Fault Driver's Insurance

In most states, you must first resolve your claim against the at-fault driver's insurance before pursuing UIM benefits. This typically means accepting the at-fault driver's policy limits. Before accepting, notify your own insurance company, as some policies require you to get their consent before settling with the at-fault driver.

Step 2: Notify Your Insurance Company

Contact your own insurance company to report the UIM claim. Provide them with documentation of the at-fault driver's policy limits, the settlement amount you received, and the remaining damages you are claiming.

Step 3: Submit Documentation

Provide your insurance company with all relevant documentation, including medical records, medical bills, proof of lost wages, and any other evidence of your damages. Your insurer will review this documentation to evaluate your claim.

Step 4: Negotiate Your UIM Benefits

Your insurance company may not agree with your assessment of your remaining damages. Be prepared to negotiate, just as you would with the at-fault driver's insurance. Having an attorney represent you in UIM negotiations can be particularly valuable because your own insurance company's interests are not aligned with yours in this situation.

Step 5: Arbitration or Litigation

If you cannot reach an agreement with your insurance company, many UIM policies include an arbitration clause that requires disputes to be resolved through binding arbitration rather than a lawsuit. Check your policy for the specific dispute resolution procedures that apply.

Common Issues with UIM Claims

Several common issues can complicate underinsured motorist claims.

Consent to Settle Requirements

Many UIM policies require you to obtain your insurance company's consent before settling with the at-fault driver. If you settle without consent, your insurer may deny your UIM claim. Always notify your insurance company before accepting any settlement from the at-fault driver.

Stacking UIM Coverage

Some states allow you to stack UIM coverage from multiple vehicles on your policy or from multiple policies in your household. Stacking can significantly increase your available UIM benefits. For example, if you have two vehicles on your policy with $100,000 in UIM coverage each, stacking would give you $200,000 in total UIM coverage.

Disputes Over Damages

Your insurance company may dispute the extent of your damages, argue that some of your injuries are pre-existing, or challenge the reasonableness of your medical expenses. Thorough documentation and, if necessary, expert testimony can help resolve these disputes.

Bad Faith Denials

If your insurance company unreasonably denies or delays your UIM claim, you may have a bad faith insurance claim against them. Bad faith claims can result in additional damages beyond the UIM benefits owed.

Why UIM Coverage Is Essential

Given the prevalence of underinsured drivers and the high cost of medical care, underinsured motorist coverage is one of the most important types of auto insurance you can carry.

The Underinsured Driver Problem

Studies show that a significant percentage of drivers carry only the minimum required liability coverage, which in many states is as low as $25,000 per person. A single emergency room visit can easily exceed this amount, leaving you with substantial uncompensated losses if you are injured by a minimally insured driver.

The Cost of Serious Injuries

Serious car accident injuries can result in medical bills of $100,000 to $1 million or more. Lost wages, rehabilitation costs, and long-term care expenses can add hundreds of thousands of dollars to your total damages. Without adequate UIM coverage, you may be left to bear these costs on your own.

Affordable Protection

UIM coverage is relatively inexpensive compared to the protection it provides. Adding or increasing UIM coverage typically costs only a modest amount per month, making it one of the best values in auto insurance.

Conclusion

Underinsured motorist coverage is a critical safety net that protects you when the at-fault driver's insurance falls short of covering your damages. Understanding how UIM coverage works, when it applies, and how to file a claim can make the difference between full compensation and devastating financial losses after an accident.

Use our free settlement calculator to estimate the total value of your accident claim and determine whether your UIM coverage may be needed to bridge the gap between the at-fault driver's coverage and your actual damages. Being informed about your coverage options and claim value puts you in the best position to protect your financial future.

Real-World UIM Claim Examples

Understanding how UIM coverage works in practice can help you appreciate its value and navigate the claims process.

Example 1: Serious Injury with Low-Coverage Driver

You suffer a herniated disc and broken wrist in a car accident caused by another driver. Your total damages are $175,000. The at-fault driver has only $25,000 in liability coverage. After settling with the at-fault driver for $25,000, you file a UIM claim with your own insurer. With $100,000 in UIM coverage in an offset state, you can recover up to an additional $75,000 from your UIM policy, for a total of $100,000. In a gap state, you could potentially recover up to $100,000 from your UIM policy, for a total of $125,000.

Example 2: Multiple Injured Parties

Three people are injured in an accident caused by a driver with $50,000 per person and $100,000 per accident liability coverage. Each person has $50,000 in damages. The at-fault driver's per-accident limit of $100,000 must be split among three claimants, giving each person approximately $33,333. Each injured person can then file a UIM claim for the remaining $16,667 of their damages.

UIM Coverage and Hit-and-Run Accidents

In many states, your uninsured motorist coverage, which is often combined with UIM coverage, can apply to hit-and-run accidents where the at-fault driver cannot be identified. This is particularly important because hit-and-run accidents leave victims with no at-fault driver's insurance to claim against. The specific rules for hit-and-run UIM claims vary by state, and some states require physical contact between the vehicles for UM coverage to apply.

Negotiating UIM Claims

Negotiating a UIM claim with your own insurance company can feel different from negotiating with the at-fault driver's insurer, but the same principles apply. Document your damages thoroughly, present strong medical evidence, and be prepared to negotiate firmly. Remember that your insurance company's goal is to minimize the payout, even though you are their policyholder. Having an attorney represent you in UIM negotiations can be particularly valuable because the attorney can advocate aggressively without damaging your relationship with your insurer.

The Future of UIM Coverage

As medical costs continue to rise and many drivers maintain only minimum liability coverage, the importance of UIM coverage is likely to increase. Some states are considering legislation to increase minimum liability requirements, which would reduce the need for UIM coverage. However, until such changes are enacted, carrying adequate UIM coverage remains one of the most important steps you can take to protect yourself financially after an accident.