What it means
Every insured driver buys liability coverage, which pays for harm that driver causes to others. The limit on that cover may be modest compared with the cost of a serious accident, such as long hospital stays or lost income.
If the other driver is at fault and their limit is exhausted, you could be left with unpaid bills. Underinsured motorist coverage, often shortened to UIM, is designed for that situation.
You buy it on your own policy, and it steps in when the at-fault driver has insurance but not enough. It is different from uninsured motorist coverage, which applies when the at-fault driver has no insurance at all.
The way UIM pays out depends on the rules where you live. In some places the insurer pays the difference between your damages and the other driver's limit, up to your UIM limit.
In others, the insurer pays the difference between your UIM limit and the other driver's limit, which can be much smaller. Cost is usually modest compared with the protection it gives.
Premiums are generally a small part of a total car insurance bill, and many experts suggest matching UIM limits to your own liability limits. Businesses with employees driving company cars should check their fleet policies for the same cover.
Claims follow a process. The injured person normally claims against the at-fault driver's insurer first, then asks their own insurer to pay the remaining loss, often with the insurer's consent before accepting any settlement.
Timing rules and consent rules are strict, so reading the policy before an accident is wise. For employers, there is an extra layer to consider.
An injured employee may have access to workers' compensation as well as UIM cover, and the way the two interact depends on local law and the policy wording. A broker can explain which source pays first and whether one reduces the other.
In practice
Real-world examples.
Example
A delivery driver suffers a back injury in a crash caused by another motorist with a $25,000 limit. The medical bills and lost wages come to $90,000. The driver's UIM cover pays the remaining amount up to the limit on the driver's own policy. The insurer asks for medical records and wage statements before it agrees the amount.
Example
A small business owner buys UIM coverage for a company van at a low annual premium. A distracted driver with minimal cover hits the van and injures the employee driving it. The business's UIM cover helps pay the employee's loss that the other driver's insurer cannot. The owner is glad of the cover but notes that it would not have paid for the van's repairs.
Example
A family buys a policy with liability limits of $250,000 and sets UIM limits to match. After a serious accident with a motorist insured only up to $30,000, the family claims the difference up to its UIM limit.
Formula
Calculation
UIM payout (damages method) = Lesser of [Your damages - At-fault driver's limit] and [Your UIM limit]
After an accident, your damages are $150,000. The at-fault driver's liability limit is $50,000 and is paid in full. Your remaining loss is 150,000 - 50,000 = $100,000. Your UIM limit is $100,000, so the payout is the lesser of $100,000 and $100,000, which is $100,000. Check the exact method in your policy, because some places use a difference-in-limits approach instead.Case study
Seen in the real world.
Hartwell Couriers is an illustrative, fictional delivery firm that asked its insurance broker to review its van policies after an employee was seriously injured by a driver with low limits. The employee's medical and recovery costs were far above the other driver's insurance.
The broker found that the firm's policy had the lowest UIM limit available, far below its liability limit. The employee received the other driver's payment but had to rely on workers' compensation and savings for the rest, and the firm faced higher premiums at renewal.
The illustrative lesson was to match the UIM limits to the liability limits across the fleet. The additional premium was small, about $15 per vehicle per month, compared with the potential protection. The broker also recommended a yearly review of limits as the fleet and the legal environment changed.
Watch out
Common mistakes.
- Confusing underinsured with uninsured motorist coverage, which applies when the other driver has no insurance.
- Settling with the at-fault driver's insurer without telling your own insurer, which can cost you the right to claim UIM benefits.
- Choosing the lowest UIM limit to save a small amount, when a serious accident can create costs far above it.
Questions
People also ask.
Is UIM coverage mandatory?
In some places it must be offered but can be declined in writing, and in others it is required, so check local law and your policy.
Does UIM pay for damage to my car?
It depends on the policy and the location, because some versions cover property damage and others cover only injuries.
What if the at-fault driver is not found?
That is usually an uninsured motorist situation, and the cover that applies may differ from UIM.
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