Underinsured Motorist Coverage

What is 'Underinsured Motorist Coverage'

Underinsured motorist coverage is an auto insurance policy provision that extends coverage to include property and bodily damage caused by a motorist with insufficient insurance. Underinsured motorist coverage is designed to provide the injured party with compensation above the limit of the at-fault party's policy.

BREAKING DOWN 'Underinsured Motorist Coverage'

Underinsured motorist coverage usually adds only nominal expense to the policy cost while providing beneficial coverage. Some drivers may purchase only the required minimum, though many purchase additional insurance for added protection. State laws generally mandate that motorists carry auto insurance.

Auto insurance coverage

Auto insurance requirements vary from state to state. Auto insurance premiums vary depending on age, gender, years of driving experience, accident and moving violation history and other factors. A poor driving record or the additional coverage will increase the cost of insurance policy premiums. However, premiums can be reduced by the insured taking on more risk for a higher deductible. In exchange for paying a premium, the insurance company agrees to pay losses as stipulated in the policy. The term of insurance is usually six or 12 months and is renewable. In new car financing, the lender may stipulate insurance requirements. An insurer will notify a customer to renew the policy and pay the premium.

An auto insurance policy covers the policyholder and other family members named on the policy, whether driving the insured car or someone else’s car with their permission. The policy also provides coverage to someone who is not named in the policy and is driving the policyholder’s car with their consent. Personal auto insurance is limited to personal driving. It does not cover using a personal car for commercial purposes, such as making deliveries. It also does not cover driving the insured car to work for ride-sharing services such as Uber or Lyft. Some auto insurers offer supplemental insurance products at additional cost that extend coverage for vehicle owners that provide ride-sharing services.

Most states requires car owners to carry bodily injury and property damage liability, medical payments or personal injury protection, or PIP, and uninsured motorist coverage. Bodily injury liability covers costs associated with injuries or death that the policyholder or another driver causes while driving the insured car. Property damage liability reimburses others for damage caused by the insured’s car to another vehicle or other property. PIP reimburses medical expenses for injuries to the insured or their passengers and will cover cover lost wages and related expenses. Uninsured motorist coverage reimburses the policyholder when an accident is caused by a driver who does not have auto insurance.