Underinsured Motorist Coverage - Explained
What is Underinsured Motorist Coverage?
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Back To: INSURANCE & RISK MANAGEMENT
What is Underinsured Motorist Coverage?
Underinsured Motorist Coverage provides the financial coverage to property and bodily damage caused by a vehicle driver who has insufficient auto insurance on their own. It provides the injured parties with compensation above the limit of the at-fault party's policy. Generally, a nominal cost is added to an auto insurance policy cost to provide Underinsured Motorist Coverage. It is different from the Uninsured Motorist Coverage which provides coverage to the cases where the at-fault driver does not have any insurance.
How Does Underinsured Motorist Coverage Work?
The data of Insurance Research Council says, approximately 12.6% of the vehicle drivers in the US do not have an auto liability insurance policy. That means if you meet with an accident where the other driver is at fault you may not get the coverage for your medical bills or auto damage, if the at-fault driver is not insured. In that case you have to depend on your own insurance for paying the bills. Uninsured Motorist Coverage was designed to meet this problem. On the other hand, Underinsured Motorist Coverage is designed to provide the damaged party with compensation which is above the limit of the at-fault drivers policy. In the US, almost all the states make it compulsory to have an Auto liability insurance. However, the limits required by the laws are generally very low. So, if the at-fault driver possesses an insurance with minimum required limit, there are chances that their policy wont cover the medical expenses of the damaged party. Underinsured Motorist Coverage ensures the damaged party's insurance policy cover that expense. The laws related to Underinsured Motorist Coverage and Uninsured Motorist Coverage differ from one state to another. In some states the law makes it mandatory to have an Underinsured Motorist Insurance and Uninsured Motorist Insurance. In other states you are allowed to reject them in writing. In some of the states the insurers are obligated to offer Underinsured Motorist Insurance limit equivalent to the liability limit. For example, the liability limit of your insurance is $1.5 million. If you live in any of these states, your insurer will be obligated to offer you a $1.5 million Underinsured Motorist Insurance limit. You may have the option to reject that limit and opt for a lower limit. In most of the states, this limit cannot exceed the auto liability limit. The underwriters employed by the insurance companies determine the amount of premium due on a policy. They user risk analysis to estimate this amount. Age, gender, driving experience, accident history and moving violation ticket history are some of the factors which are considered while doing the risk analysis. The terms are generally six or 12 months and are renewable. Most of the insurance companies provide different types of underinsured motorist coverage policy. Some policies only cover bodily injury and some other cover only the property damage. There are also some policies that cover both bodily injury and property damage.
How to file an Underinsured Motorist Coverage Claim
Suppose a person meets with an accident which is not their fault and the at-fault driver doesn't hold an insurance that is sufficient to cover the damage. In such scenarios the underinsured coverage kicks in. The motorist who has suffered the damage will file a claim with their own insurance provider. Their provider will then contact the insurance company of the at fault motorist for payment. If they do not carry enough insurance to cover the damage expenses, the underinsured coverage will satisfy the coverage up to the limit of the policy. Some of the insurance companies allow a limited time within which you have to file the underinsured claim. This time limit varies from one company to another. Copies and billings of all medical treatment and automobile repair need to be submitted while filing a claim.
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