When it comes to auto insurance, one of the most important aspects of protecting yourself on the road is ensuring that you’re covered in the event of an accident. While liability insurance is mandatory in most states, Uninsured Motorist Coverage (UM) and Underinsured Motorist Coverage (UIM) are optional but highly beneficial add-ons that provide crucial protection. Although they sound similar, these two types of coverage are distinct in what they protect against, and understanding the differences is key to selecting the right coverage for your needs.
In this article, we will explore the key differences between Uninsured Motorist Coverage and Underinsured Motorist Coverage, explain how each type of insurance works, and why you should consider including both in your auto insurance policy.
What Is Uninsured Motorist Coverage?
Uninsured Motorist Coverage (UM) is a type of auto insurance that protects you if you are involved in an accident with a driver who does not have any car insurance. It is designed to cover your medical expenses, lost wages, and property damage when the at-fault driver is uninsured. In many states, there are still a significant number of drivers on the road who fail to carry the mandatory insurance required by law. According to the Insurance Information Institute (III), approximately 13% of all drivers in the U.S. are uninsured. Without UM coverage, you would be left to cover your expenses out of pocket or pursue legal action against the uninsured driver—neither of which is an ideal scenario.
If you’re in an accident caused by an uninsured driver, your Uninsured Motorist Coverage would help pay for:
- Medical expenses: Treatment for injuries you sustained during the accident.
- Property damage: Repairs or replacement of your vehicle if it’s damaged in the crash.
- Lost wages: Compensation for the income you lose if you are unable to work due to your injuries.
UM coverage is especially valuable if you live in an area where there is a higher incidence of uninsured drivers or if you don’t want to risk financial hardship if an uninsured driver causes an accident.
What Is Underinsured Motorist Coverage?
Underinsured Motorist Coverage (UIM), on the other hand, is designed to cover you if you’re in an accident caused by a driver who has insurance, but their coverage is insufficient to cover the full extent of your damages. While the at-fault driver may carry liability insurance, their policy limits might not be enough to pay for all of your medical bills, vehicle repairs, and other expenses. For example, if the at-fault driver has the minimum insurance required by law in your state—let’s say $25,000 in bodily injury coverage—but your medical expenses and vehicle repairs total $50,000, UIM coverage would help pay for the remaining $25,000.
Underinsured Motorist Coverage generally covers:
- Medical expenses: If the at-fault driver’s insurance doesn’t cover all your medical costs, UIM can pay the difference.
- Property damage: If the other driver’s property damage coverage is insufficient to repair or replace your vehicle, UIM can make up the gap.
- Lost wages: If you’re unable to work due to the accident, UIM coverage can help replace some of your lost income.
UIM coverage is a valuable addition to your auto insurance policy, especially if you live in a state with low minimum coverage limits. In many cases, drivers may opt for the minimum insurance required by law, which may not be enough to cover serious accidents. UIM ensures that you’re not left paying the difference out of pocket.
Key Differences Between Uninsured and Underinsured Motorist Coverage
While both Uninsured Motorist Coverage and Underinsured Motorist Coverage are essential components of a comprehensive auto insurance policy, they provide coverage in different scenarios. Here’s a breakdown of the key differences:
1. Who the Coverage Applies To
- Uninsured Motorist Coverage applies when the at-fault driver has no insurance at all. If you’re in an accident caused by an uninsured driver, UM coverage will cover your medical expenses, lost wages, and property damage.
- Underinsured Motorist Coverage applies when the at-fault driver has insurance, but their policy limits are not sufficient to cover the full extent of your damages. If their insurance policy pays out the maximum allowed but doesn’t cover all your medical costs or vehicle repairs, UIM will help cover the remaining costs.
2. Level of Coverage
- Uninsured Motorist Coverage covers the full cost of damages and injuries when the other driver has no insurance. There is no need for you to pursue the at-fault driver for compensation, as your own insurance company will handle the claim.
- Underinsured Motorist Coverage, by contrast, fills the gap when the other driver’s insurance is inadequate. You may still need to recover part of the costs from the at-fault driver’s insurance, but UIM ensures that you won’t be left without coverage for the remaining expenses.
3. Availability of Coverage
- Uninsured Motorist Coverage is typically included automatically in many states’ insurance requirements, especially in no-fault states where your insurance company covers your medical expenses regardless of fault. However, in some states, you may need to opt into this coverage or specifically reject it.
- Underinsured Motorist Coverage, however, is often optional and must be specifically added to your policy. Many drivers might not be aware of the benefits of UIM, but having it ensures that you are protected in case the at-fault driver’s insurance falls short.
4. State Requirements
- Uninsured Motorist Coverage is mandatory in many states, particularly in no-fault states, where it’s important for drivers to have sufficient coverage to handle accidents. However, the amount of UM coverage required can vary from state to state.
- Underinsured Motorist Coverage is generally optional and may not be offered automatically. Some states allow you to opt for a reduced or higher limit of UIM coverage depending on your needs and the amount of liability coverage you carry.
5. Premium Costs
- Uninsured Motorist Coverage is usually more affordable than UIM because it applies only when the other driver has no insurance. The risk associated with covering an uninsured driver is lower than covering someone with insufficient insurance.
- Underinsured Motorist Coverage, however, may carry higher premiums because it provides coverage in cases where the at-fault driver has insurance but not enough to fully cover your costs. Since these accidents are often more expensive, the risk to insurers is higher, and so are the costs.
Why Do You Need Both Uninsured and Underinsured Motorist Coverage?
While both Uninsured Motorist Coverage and Underinsured Motorist Coverage serve different purposes, they work hand-in-hand to provide comprehensive protection in various accident scenarios. Having both types of coverage ensures that you are fully covered in the event of an accident, regardless of whether the other driver has insurance or not, or if their insurance is insufficient to cover your costs.
Here’s why you need both:
- Protection Against Uninsured Drivers: With UM coverage, you are protected against drivers who don’t carry any insurance, ensuring you don’t have to pay out of pocket for damages caused by someone else’s negligence.
- Protection Against Inadequate Insurance: Even if the other driver has insurance, UIM coverage ensures that you aren’t left with unpaid medical bills or repair costs if their policy limits are too low. This is especially crucial in states where the minimum liability coverage required by law may not be enough to cover serious accidents.
- Peace of Mind: Both UM and UIM offer peace of mind knowing that you won’t be financially devastated if an uninsured or underinsured driver causes an accident.
How Much Coverage Do You Need?
The amount of Uninsured/Underinsured Motorist Coverage you need depends on your state’s requirements, your personal assets, and your risk tolerance. Ideally, you should match the limits of your UM/UIM coverage to the amount of liability insurance you carry. This ensures that if you are involved in a serious accident, you won’t have to worry about running out of coverage.
It’s also a good idea to consider purchasing higher limits if you can afford it. The added protection could be invaluable, especially if you live in an area with a higher number of uninsured or underinsured drivers.
Conclusion
Uninsured/Underinsured Motorist Coverage is an essential safety net that ensures you are financially protected when the driver responsible for your accident does not have adequate insurance. While both UM and UIM provide vital coverage, understanding the key differences between the two can help you make more informed decisions about your auto insurance policy.
Whether you’re concerned about uninsured drivers or those with insufficient coverage, adding UM/UIM coverage to your policy is a smart way to safeguard yourself and your financial future. Make sure to talk with your insurance agent to ensure that your coverage meets your needs and provides peace of mind while you’re on the road.