What it means
An underinsured motorist claim only starts if the other driver's insurance counts as "underinsured" under your policy. That label is defined by a test, and the test is the trigger.
Two main tests are used, and they can produce different answers for the same accident. The first is the limits-to-limits test.
It compares the other driver's liability limit with your UIM limit, and the other driver is underinsured if the first is lower than the second. The size of your actual loss does not matter for this test, only the two policy limits.
The second is the damages test, sometimes called the excess or gap test. Here the other driver is underinsured if your damages are greater than their liability limit.
This test follows your real loss, so a serious accident can trigger cover even when the two limits are equal. The test also affects how much you can collect.
Under some rules, the UIM insurer pays the difference between your UIM limit and the at-fault limit, and under others it pays your losses beyond the at-fault limit, up to your UIM limit. A policy buyer should read the definitions, because the same words can lead to a very different payout.
For businesses and individuals, the practical point is that buying a high UIM limit does not guarantee a payout if the trigger is not met. It is sensible to ask the insurer or broker which test applies in your location, and to check whether the limits are per person or per accident.
Documenting the question in writing avoids disputes later. Insurers sometimes use other tests as well, such as comparing the other driver's limit with the total of your damages and your own coverage.
Because the rules differ so widely, comparing quotes without understanding the test can be misleading. Two policies with the same headline limit can behave very differently after an accident.
In practice
Real-world examples.
Example
A driver with a $100,000 UIM limit is hit by a motorist insured for $30,000. Under a limits-to-limits rule, the claim qualifies at once because $30,000 is less than $100,000, and the loss is then measured. The insurer will still need proof of the damages before it pays.
Example
A cyclist's medical costs are $200,000 after a collision with a driver whose limit is $100,000, and the cyclist's own UIM limit is $100,000. A pure limits test would not apply, but under a damages test the claim is triggered because the loss is higher than the driver's limit.
Example
A business owner is told by a broker that the state uses a damages trigger. The owner chooses a UIM limit equal to the company's liability limit, knowing that a large loss will still allow a claim even when the other driver has similar cover. He records the broker's answer in the insurance file for future reference.
Formula
Calculation
Limits-to-limits trigger: UIM applies if At-fault driver's liability limit < Your UIM limit
Damages trigger: UIM applies if Your damages > At-fault driver's liability limit
Case A: the at-fault limit is $50,000, your UIM limit is $100,000 and your damages are $80,000. Limits test: 50,000 < 100,000, so cover is triggered. Damages test: 80,000 > 50,000, so cover is triggered. Case B: the at-fault limit is $100,000, your UIM limit is $100,000 and your damages are $140,000. Limits test: 100,000 < 100,000 is false, so no trigger. Damages test: 140,000 > 100,000 is true, so cover is triggered.Case study
Seen in the real world.
Clearwater Logistics is an illustrative, fictional company that operates vans in two regions. A broker discovered that one region used a limits-to-limits trigger and the other used a damages trigger, and that the company's policy wording followed the different local rules.
In the first region, the company had set its UIM limit at $100,000, the same as most other drivers' liability limits. The broker explained that this would rarely trigger cover under that region's test, because the other driver's limit would usually equal or exceed its own.
The illustrative outcome was a decision to raise the UIM limit to $250,000 in that region. The company also documented the trigger rules for each region in its insurance manual so that claims staff would know which test applied. The broker also arranged a short training session for the fleet managers so that the rules would be applied correctly after an accident.
Watch out
Common mistakes.
- Assuming the trigger is the same everywhere, when it varies by state, country and policy.
- Choosing a UIM limit equal to common liability limits in a limits-to-limits area, which means cover may rarely apply.
- Ignoring the difference between per-person and per-accident limits when comparing the two sides.
Questions
People also ask.
What is the limits-to-limits test?
It treats the other driver as underinsured only if their liability limit is lower than your UIM limit, regardless of your actual loss.
What is the damages test?
It treats the other driver as underinsured if your damages are greater than their liability limit, so your actual loss decides.
Where can I find the rule that applies to me?
It is set out in the definitions section of your policy and in local insurance law, and your broker or insurer can confirm it.
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