When it comes to auto insurance, choosing the right coverage can be overwhelming. One essential yet often misunderstood type of coverage is Uninsured/Underinsured Motorist Coverage (UM/UIM). This coverage is designed to protect you in the event of an accident caused by another driver who either doesn’t have insurance or doesn’t have enough insurance to cover your damages. While it offers invaluable protection, it’s natural to wonder: How does UM/UIM coverage affect your premiums?
In this article, we will explore the impact of Uninsured/Underinsured Motorist Coverage on your premiums, help you understand how this type of coverage works, and provide tips on how to manage the costs. By the end, you will have a clearer understanding of whether adding UM/UIM coverage to your policy is worth the extra cost and how to balance protection with affordability.
What Is Uninsured/Underinsured Motorist Coverage?
Before diving into the specifics of how Uninsured/Underinsured Motorist Coverage affects your premiums, it’s important to first understand what this coverage entails and why it’s so essential.
- Uninsured Motorist Coverage (UM): This coverage protects you if you are in an accident caused by a driver who has no insurance at all. Even though car insurance is legally required in most states, a significant number of drivers still choose to drive without it, leaving you vulnerable if you are involved in an accident. UM coverage helps cover medical bills, vehicle repairs, and other damages when the at-fault driver lacks insurance.
- Underinsured Motorist Coverage (UIM): This kicks in when the at-fault driver has insurance, but their policy limits are too low to cover the full extent of the damages. For example, if the other driver has the state minimum insurance coverage but your medical bills and property damage far exceed that amount, UIM coverage will cover the difference.
Though UM/UIM coverage is not required by law in all states, many experts consider it an essential part of an auto insurance policy. The cost of adding it to your policy is usually relatively affordable, especially when weighed against the potential expenses of dealing with an accident caused by an uninsured or underinsured driver.
How Does UM/UIM Coverage Affect Your Insurance Premiums?
The most common question drivers have about Uninsured/Underinsured Motorist Coverage is how it will impact their premiums. The short answer is that adding UM/UIM coverage to your auto insurance policy will typically result in an increase in your monthly premium. However, the price increase varies depending on several factors, and in many cases, the additional cost is relatively low. Let’s explore the different factors that can influence how much your premiums go up when you add UM/UIM coverage.
1. State Requirements and Coverage Limits
One of the key factors that will determine how much UM/UIM coverage affects your premiums is your state’s laws and the required coverage limits. Some states require drivers to have UM/UIM coverage, while others offer it as an optional add-on. In states where UM/UIM coverage is mandatory, the cost of this coverage is typically built into your premium.
In states where UM/UIM coverage is optional, the cost will depend on the level of coverage you select. Higher coverage limits will increase your premiums more than lower limits. For example, if you choose $100,000 in UM/UIM coverage per person, the increase in your premium will be higher compared to selecting the state minimum or lower coverage limits. However, the extra cost might still be small relative to the protection you gain, especially if you’re in an area with a high percentage of uninsured or underinsured drivers.
2. Your Driving History
Insurance premiums are often based on your individual risk level, and UM/UIM coverage is no exception. If you have a clean driving record, you may see a smaller increase in premiums when you add this coverage. However, if you have a history of accidents, traffic violations, or insurance claims, your insurance provider may consider you a higher risk, resulting in a higher premium increase.
Additionally, drivers who live in areas with high accident rates or high numbers of uninsured motorists may experience larger increases in their premiums. UM/UIM coverage is designed to protect you in case the other driver cannot pay for damages, so if your risk of encountering an uninsured or underinsured driver is higher, the insurance company may charge a higher premium to account for that increased risk.
3. Type of Vehicle You Drive
The type of car you drive can also affect your premiums, including for UM/UIM coverage. If you drive an expensive vehicle, your insurance premiums will naturally be higher because the cost to repair or replace the vehicle is greater. The same principle applies when it comes to UM/UIM coverage. More expensive cars often require higher liability limits, and if you opt for higher coverage for uninsured or underinsured motorists, your premiums will reflect that.
Conversely, if you drive a more affordable car, the premium for UM/UIM coverage will likely be lower because the cost of repair or replacement is cheaper. That said, regardless of your vehicle’s value, if you live in an area with a high percentage of uninsured drivers, you may still face higher premiums for this coverage.
4. Your Credit Score
In many states, insurance companies use your credit score as one of the factors in determining your premiums. While it may seem unrelated to your driving habits, studies have shown that individuals with higher credit scores tend to file fewer claims, which is why insurers consider it a factor in pricing policies.
If you have a strong credit score, you might experience a more favorable premium increase when adding UM/UIM coverage. On the other hand, if your credit score is low, your premium increase could be higher, as the insurer might perceive you as a higher risk.
5. Your Deductible
The amount of your deductible for UM/UIM coverage will also influence your premium. A deductible is the amount you have to pay out of pocket before your insurance coverage kicks in. If you choose a higher deductible for your UM/UIM coverage, your monthly premium will likely be lower. However, if you opt for a low deductible, your premium will increase accordingly.
When selecting a deductible for UM/UIM coverage, it’s important to balance affordability with protection. A higher deductible means a lower premium, but it also means you’ll be responsible for more costs out of pocket in the event of an accident. If your goal is to minimize the impact on your budget, a higher deductible might be a good option, but be sure that you can afford to cover the deductible in case of an accident.
Is the Extra Premium Cost Worth It?
One of the most common questions drivers have when it comes to UM/UIM coverage is whether the additional premium cost is worth it. While it’s true that adding UM/UIM coverage will typically raise your insurance premiums, the cost is often minimal when compared to the protection it offers.
Without UM/UIM coverage, if you are involved in an accident with an uninsured or underinsured driver, you could be left with significant medical bills and vehicle repair costs that aren’t covered by your insurance. In this case, the additional premium for UM/UIM coverage could save you thousands of dollars in medical expenses, lost wages, and property damage.
Ultimately, the decision to add UM/UIM coverage should be based on your financial situation, risk tolerance, and the number of uninsured or underinsured drivers in your area. If you live in an area with a high percentage of uninsured drivers, or if you simply want peace of mind, the extra cost is usually well worth the added protection.
Conclusion
Uninsured/Underinsured Motorist Coverage is an essential form of protection that can shield you from the financial impact of an accident caused by an uninsured or underinsured driver. While it does increase your insurance premiums, the cost is often relatively small and worth the added peace of mind. By understanding the factors that influence your premiums, such as your state’s requirements, your driving history, and the coverage limits you select, you can make an informed decision about the right amount of UM/UIM coverage for your needs.
The next time you review your auto insurance policy, consider the long-term benefits of adding UM/UIM coverage. While premiums might rise slightly, the financial protection it offers in the event of an accident with an uninsured driver could save you much more in the long run.