When it comes to car insurance, understanding the various types of coverage and how they protect you is crucial. One of the most important, yet often overlooked, types of coverage is Uninsured/Underinsured Motorist Coverage (UM/UIM). This coverage can be a lifesaver in the event of an accident with a driver who has no insurance or insufficient insurance to cover the damages. However, choosing the right amount of UM/UIM coverage for your specific needs can be challenging.
While many drivers are familiar with mandatory liability insurance, Uninsured/Underinsured Motorist Coverage is an added layer of protection that isn’t always required by law. That said, it is highly recommended to have UM/UIM coverage, and determining the right level of coverage can make all the difference in protecting your finances in the event of an accident. In this article, we will guide you through how to assess your needs and select the best UM/UIM coverage to protect you, your passengers, and your property.
What Is Uninsured/Underinsured Motorist Coverage?
Before we delve into how to choose the right amount, it’s essential to understand what Uninsured/Underinsured Motorist Coverage is and how it works.
- Uninsured Motorist Coverage (UM) protects you if the driver at fault in an accident does not have any insurance. Unfortunately, there are still a significant number of uninsured drivers on the road. Without UM coverage, if you’re in an accident with an uninsured driver, you could be left paying for medical expenses, vehicle repairs, and other damages out of pocket.
- Underinsured Motorist Coverage (UIM), on the other hand, applies when the at-fault driver has insurance, but their policy limits are too low to cover all of the damages. For instance, if the other driver’s policy covers only $25,000 in bodily injury, but your medical expenses total $50,000, UIM coverage helps cover the remaining $25,000, preventing you from having to pay the difference yourself.
UM/UIM coverage can help protect you from both medical and property damage expenses, and it’s especially important in states with a high percentage of uninsured drivers. With the proper coverage, you can ensure that an accident, regardless of who is at fault, doesn’t derail your financial stability.
Factors to Consider When Choosing the Right Amount of UM/UIM Coverage
Now that you have a basic understanding of what UM/UIM coverage is, it’s time to figure out how to choose the right amount for you. The ideal coverage amount depends on various factors, including your risk tolerance, the state you live in, and your current financial situation. Here are some key considerations when selecting the appropriate level of Uninsured/Underinsured Motorist Coverage:
1. State Requirements and Legal Minimums
First, check your state’s laws regarding UM/UIM coverage. While some states require it as part of the mandatory auto insurance minimums, others leave it up to the driver’s discretion. In states where UM/UIM coverage is not mandatory, you can still opt for it, but the amount you need may depend on the state’s auto insurance requirements and the number of uninsured or underinsured drivers on the road.
Even in states where UM/UIM coverage isn’t mandatory, your insurance provider will usually offer it to you when you purchase a policy. It’s essential to understand the minimum coverage limits required by your state to ensure that your policy meets or exceeds the state’s legal requirements.
2. The Number of Uninsured or Underinsured Drivers in Your State
The prevalence of uninsured or underinsured drivers is a crucial factor in determining the amount of UM/UIM coverage you should carry. According to the Insurance Information Institute, approximately 13% of U.S. drivers are uninsured, with some states having even higher rates. For instance, states like Florida, Mississippi, and Alabama have a higher percentage of uninsured drivers compared to states like New York and Massachusetts.
If you live in a state with a high rate of uninsured drivers, it’s generally advisable to choose a higher amount of UM/UIM coverage. This ensures that you are fully protected in case you’re in an accident with someone who doesn’t have insurance or enough insurance to cover your damages. Conversely, if you live in a state with a lower percentage of uninsured drivers, you might feel comfortable opting for lower coverage.
3. Your Financial Situation and Risk Tolerance
When choosing the amount of UM/UIM coverage, it’s essential to consider your personal financial situation. If you have significant savings or assets, you may want to opt for a higher coverage limit to protect your finances in the event of a serious accident. On the other hand, if you have limited savings, a more modest amount of coverage may be sufficient, though it’s still wise to have enough protection to cover medical costs and property damage in the event of an accident with an uninsured driver.
Additionally, think about your risk tolerance. If you are comfortable taking on a higher level of risk and can absorb some out-of-pocket expenses, you may choose a higher deductible or lower policy limits. However, for most drivers, it’s generally better to opt for more coverage to minimize the risk of financial strain in the event of an accident.
4. Your Health Insurance and Other Coverage
It’s also important to consider the coverage you already have, particularly your health insurance. If you already have robust health insurance that can cover medical expenses following an accident, you may feel comfortable with lower UM/UIM coverage for medical costs. However, health insurance typically doesn’t cover all of the costs associated with a car accident, such as lost wages, pain and suffering, or certain types of property damage.
In addition, if your auto insurance policy already includes comprehensive and collision coverage, your vehicle’s repairs or replacement might be covered even if the at-fault driver is uninsured. However, UM/UIM coverage can still be valuable to ensure that you are fully protected for any medical or property damage costs that might arise from an accident with an underinsured driver.
5. Potential Medical Expenses and Property Damage Costs
The extent of potential medical expenses and property damage should also influence your decision. If you drive a high-value vehicle or are concerned about the potential costs of long-term medical treatment, you might opt for higher UM/UIM coverage limits. Medical bills can add up quickly after an accident, especially if you suffer from severe injuries requiring surgeries, physical therapy, or ongoing treatment. Similarly, vehicle repairs can be costly, especially if your car is a newer or more expensive model.
Higher UM/UIM coverage can give you the peace of mind that these costs will be covered, even if the at-fault driver does not have enough insurance. Keep in mind that medical and repair costs can vary greatly depending on the severity of the accident and the area where you live.
How Much UM/UIM Coverage Should You Get?
While the amount of Uninsured/Underinsured Motorist Coverage you need depends on your unique circumstances, a good starting point is to ensure that your UM/UIM coverage matches or exceeds the liability coverage limits on your auto insurance policy. This is because UM/UIM coverage typically covers the same types of damages as liability insurance, including medical expenses and property damage.
In general, it’s recommended to have at least $100,000 per person and $300,000 per accident for bodily injury under UM/UIM coverage, especially if you have significant assets or live in an area with many uninsured drivers. You may also want to consider adding coverage for property damage, which is usually a separate component of UM/UIM coverage.
Conclusion
Choosing the right amount of Uninsured/Underinsured Motorist Coverage is an important step in protecting yourself, your passengers, and your finances in the event of an accident. By considering factors like state laws, the number of uninsured drivers in your area, your financial situation, and your existing health and auto insurance coverage, you can select a coverage amount that provides the protection you need. While UM/UIM coverage may come with an additional premium cost, the peace of mind it offers is invaluable, particularly in a world where the risk of encountering an uninsured or underinsured driver is real. Don’t leave your financial future to chance—make sure you’re adequately covered with the right UM/UIM coverage today.