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Uninsured vs. Underinsured Motorist: Who Pays and When?

Uninsured and underinsured motorist coverage are essential components of auto insurance policies designed to protect you in the event of an accident involving drivers who lack sufficient insurance. Uninsured Motorist (“UM”) coverage helps when the other driver has no insurance, while Underinsured Motorist (“UIM”) coverage assists when the other driver’s insurance is inadequate.
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Collen Clark Published by Collen Clark

What is Uninsured Motorist Coverage?

According to Investopedia, uninsured motorist (UM) coverage is a vital part of an auto insurance policy that provides protection when you’re involved in an accident with a driver who lacks insurance [1].

If you have UM coverage, it pays for injuries to you and your passengers, and in some instances for damage to your vehicle. Some states require that auto insurance policies include uninsured motorist coverage, while in other states, UM is an optional endorsement you can add to your policy.

State Requirements for UM Coverage
Most states require drivers to carry some level of automobile liability insurance, although the specifics vary. Notably, New Hampshire does not mandate any minimum amount of auto insurance coverage, and Virginia allows drivers to opt out of insurance for a fee.

Prevalence of Uninsured Drivers
Despite these requirements, approximately one in eight drivers in the U.S. is uninsured, according to the Insurance Research Council. Their 2021 report highlighted that Mississippi had the highest rate of uninsured drivers at 29.4%, followed by Michigan, Tennessee, New Mexico, and Washington. Conversely, New Jersey had the lowest percentage of uninsured motorists at 3.1%.

Importance of UM Coverage
Given the risk of encountering uninsured drivers, about half of the states, along with Washington, D.C., require auto insurance policies to include uninsured motorist coverage. Several other states have specific conditions under which UM coverage is required, such as when opting for liability limits higher than the state minimum.

What is Underinsured Motorist Coverage?

Underinsured motorist (UIM) coverage is a type of auto insurance that protects you if you’re involved in an accident with a driver whose insurance is insufficient to cover the damages. If the at-fault driver’s insurance limit is lower than the cost of your medical bills or vehicle repairs, UIM coverage will cover the remaining expenses.

How UIM Coverage Works
The specifics of “underinsured” status and UIM coverage vary by state. In some states, UIM coverage is mandatory, while in others, it can be added to your policy as an optional endorsement.

Example of UIM Coverage
Imagine you’re in a car accident that isn’t your fault. After ensuring everyone’s safety and exchanging information with the other driver, you find that the other driver only has the minimum liability coverage, which isn’t enough to cover your repair costs. With UIM coverage, your insurance will cover the additional expenses, up to your policy’s limit.

Components of UIM Coverage
Underinsured motorist coverage generally includes two main parts:

  • Bodily Injury Coverage: Covers medical expenses and potentially lost wages.
  • Property Damage Coverage: This covers the costs to repair or replace your vehicle.

How Many Drivers are Uninsured?

A 2017 study by the Insurance Research Council (IRC) revealed that 13% of motorists across the United States were uninsured in 2015, translating to about one in eight drivers [3]. In California, the situation is even more concerning, with 15.2% of drivers being uninsured, making it the 12th worst state in the country for uninsured motorists. This means that at least one out of every seven drivers on California roads is uninsured at any given time.

Underinsured Drivers: An Overlooked Issue
The problem extends beyond uninsured drivers to include underinsured drivers. California’s mandatory minimum insurance requirements are notably low. Currently, drivers must carry:

  • Bodily Injury Liability Coverage: $15,000 per person and $30,000 per accident
  • Property Damage Liability Coverage: $5,000

Given the rising costs of healthcare and vehicle repairs, these minimum coverage amounts are often insufficient in the event of a serious accident. This leaves many drivers at risk of not having adequate financial protection in the aftermath of a collision.

The high percentage of uninsured and underinsured drivers in California highlights the importance of considering additional coverage options, such as uninsured/underinsured motorist (UM/UIM) coverage. This extra layer of protection can help ensure that you are adequately covered, even if the other driver lacks sufficient insurance.

Being informed about the realities of insurance coverage in your state can help you make better decisions to safeguard your financial well-being on the road.

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