The difference between an uninsured and an underinsured motorist is whether he or she has any liability insurance coverage, at all. Underinsured drivers have liability coverage that will cover some of the victim’s losses. Uninsured drivers either do not have any liability coverage, or have insurance coverage that will not cover any of the victim’s losses.
How are underinsured and uninsured motorists different?
Underinsured and uninsured motorists are different based on whether their liability coverage will help victims recover. If an underinsured driver causes a car accident that hurts someone, their insurer will partially cover the victim’s losses. If the accident is caused by an uninsured driver, that driver’s insurer will not cover the victim’s losses, at all.
Underinsured drivers have car insurance. That car insurance includes liability coverage for when the driver causes an accident. What makes someone an underinsured driver is when the liability coverage on their auto insurance policy would not fully compensate the victim of the wreck. This means that the severity of the crash is a driving factor in whether a driver will be underinsured or not. The same driver can be fully insured for a minor crash, but underinsured for a serious one.
For example: Paul carries the state minimum of $15,000 of bodily injury liability coverage. He causes a motor vehicle accident that hurts Dale. Dale suffers $100,000 in medical expenses, alone. In this case, Paul is an underinsured driver because his low coverage limits mean that he will not have enough insurance. If Dale had only suffered $11,000 in total losses from the crash, Paul would not be an underinsured driver.
Uninsured drivers either do not have car insurance, or do not have any liability insurance that would cover a car accident. Usually, they do not have car insurance. They are different from underinsured drivers in that their insurance will not compensate victims, at all. In many states, it is a crime to drive without car insurance. Only 2 states do not require drivers to carry at least a minimal amount of car insurance. These states are:
- New Hampshire, and
Nevertheless, in 2019, an estimated 12.6 percent of drivers in the U.S. had no car insurance. The percentage of drivers without auto liability insurance varied widely between states. Drivers in New Jersey and Maine were among most likely to have collision coverage, with only 3.1 percent and 4.9 percent of them being uninsured. States like Mississippi and New Mexico had some of the highest rates of uninsured drivers, at 29.4 percent and 21.8 percent. California was in between these extremes, with 16.6 percent of drivers not having collision insurance.1
Underinsured and uninsured drivers are similar in one way: They can be held personally liable for what their insurer does not cover.
For example: Dale files a personal injury lawsuit against Paul. The jury determines that Dale’s medical bills and other damages are $150,000. Paul’s insurance coverage pays the policy limit of $15,000. Dale can then try to recover the remaining $135,000 from Paul’s assets.
Because these drivers can leave victims with no compensation for their losses, most auto insurance providers offer coverage against both uninsured and underinsured drivers.
What is underinsured motorist coverage?
Underinsured motorist coverage is a type of first-party insurance. Often referred to as UIM, it covers the policyholder if he or she is hurt by an underinsured driver. Once the at-fault driver’s insurance policy limit has been reached, the victim’s own auto insurance company will step in and cover the remainder.
In many states, underinsured motorist coverage is optional. However, it is often recommended. Many drivers go without it, though, because it will increase their premiums.
Underinsured motorist coverage will compensate victims for their:
It will also help fill in the gaps left by the victim’s health insurance by covering medical payments like:
- co-pays, and
- other exclusions.
This auto coverage can help when the at-fault driver has liability limits that let the insurer escape without covering all of the victim’s expenses. This is often the case when the accident is a serious one that caused severe injuries. It also tends to happen when the at-fault driver only carries the state minimum amount of liability insurance.
What is uninsured motorist coverage?
Similarly, uninsured motorist coverage is a type of first-party insurance that drivers can add to their auto insurance policies. Often called UM coverage, it covers the policyholder when he or she is hurt in a car accident that was caused by a driver who does not have insurance that will cover the victim’s losses.
Uninsured motorist coverage is also optional in many states. Many drivers go without it because it will raise their premiums. It is often bundled together with underinsured motorist coverage. Some insurers differentiate between 2 types of uninsured motorist coverage:
- uninsured motorist bodily injury coverage (UMBI), and
- uninsured motorist property damage coverage (UMPD).
In most states, uninsured motorist insurance will also cover victims of hit-and-run accidents when the identity of the hit-and-run driver is unknown.
Do states require these types of car insurance?
Many states legally require drivers to carry uninsured motorist coverage for bodily injuries. Fewer states require underinsured motorist coverage. Fewer still require uninsured coverage for property damage. This is in contrast to third-party insurance, also known as liability insurance, which is required in nearly every state in the U.S.
Different states require different amounts of liability insurance. This is to ensure that innocent drivers who get hurt will have a source of financial compensation. They generally require different minimums for:
- bodily injury for each person,
- bodily injury for each crash, and
- property damage.
In California, for example, state laws require that drivers carry at least:
- $15,000 of liability insurance for bodily injury per person,
- $30,000 for bodily injury per accident, and
- $5,000 for property damage.2
It is often wise to carry more than the minimum amount of liability insurance, though. Higher limits mean that the insurance company will pay for more damages. This can reduce the chance that the victim will be undercompensated due to the policy limit and have to pursue the driver’s personal assets.
Even in states where it is not required, it is also usually a good idea to carry underinsured and uninsured motorist coverage. They can make a huge difference for drivers who have been hurt by someone who does not carry adequate liability insurance.