Underinsured Motorist Insurance

Underinsured motorist insurance covers only the state-required minimum insurance. State-required insurance doesn't cover added costs from major accidents, leaving drivers with underinsured motorist insurance liable.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 20, 2021

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Here's what you need to know...

  • The state-required minimum liability insurance will not provide enough coverage for major accidents, leaving the carrier underinsured
  • To protect yourself from an underinsured driver, you can pick up that type of supplemental auto insurance so that you will not be responsible for the difference in cost
  • Talk to an agent about how much coverage you need to protect yourself financially

Although it is almost impossible to purchase less than the state minimum amount of car insurance from a licensed agent, there is such a thing as an underinsured motorist.

Being an underinsured motorist refers to purchasing a car insurance policy that does not provide you with sufficient protection against all types of liability.

Consider the fact that a liability car insurance policy might only cover $20,000 in damages. If this driver were to cause an accident and total a brand new luxury vehicle, they would be underinsured.

Liability auto coverage is required in every U.S. state with a few exceptions; however, many of these motorists are still underinsured.

Just because you have a valid car insurance policy does not mean that it will provide you with enough coverage to pay for any damages that you cause when driving.

In basic terms, an underinsured driver simply doesn’t have enough coverage to pay for any damages sustained in a serious collision.

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Why Underinsured Insurance is Necessary

It is rather unfortunate that many people find themselves in a situation where they are in need of underinsured insurance.

Quite a large number of drivers carry insurance liability coverage that is insufficient to cover the cost of a serious accident if they were at fault.

A car accident where someone is killed often surpasses the limits of liability coverage for many drivers.

  • Multiple injury victims from a single-car accident are also likely to surpass liability limits
  • A serious injury that requires long-term care can surpass coverage limits
  • Even hospitalization followed by rehabilitation, can also easily exceed the liability limit of many policies

Another unfortunate fact is that many people opt for the minimum amount of coverage that they must carry when it comes to car insurance, primarily because they are trying to save money by cutting corners on their coverage.

Many of them incorrectly assume that the state requirements are sufficient. In fact, they are not.

In all states there are minimum amounts of bodily injury and property damage liability limits that you must carry on your vehicle unless you meet certain other financial requirements.

These limits are astonishingly low when you consider the cost of healthcare. While adequate for fender benders, when you need coverage the most, following a serious accident, state minimum amounts of liability insurance are pitifully inadequate.

State minimum amounts of liability coverage range from a low of $10,000 per person and $20,000 per accident in the state of Florida to a high of $50,000 per person and $100,000 per accident in Wisconsin.

Even at the higher levels, medical expenses can easily exceed limits.

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How can you tell if you have an underinsured car insurance policy?

Although there are plenty of auto insurance providers that are willing to sell no more coverage than is required by law, this is often not enough to fully protect drivers.

Under the minimum coverage in Ohio, drivers only need to purchase $12,500 in bodily injury coverage.

If you only purchased a policy that provided you with this amount of bodily injury protection, you would have to find a way to come up with the difference when faced with a $100,000 hospital bill.

Underinsured motorists also tend to be high-risk drivers that have previously been in accidents. If you own an expensive vehicle, a large truck, or an SUV, but you only have liability coverage, you are probably underinsured.

There are no particular criteria that you can use to identify if you are underinsured. You will need to think about what your current financial circumstances are and then consider how much car insurance you really need.

If you have recently reduced your amount of car insurance in an effort to save money but you don’t feel secure in your decision, you may be an underinsured motorist.

How much car insurance is enough?

For some drivers, there is simply no such thing as having too much car insurance. For motorists that have never gotten into an accident, buying more coverage than they are legally required to may seem like a waste of money.

If you have specific questions about how much car insurance you need specific to your risk factors and lifestyle, visiting with a car insurance agent is advised.

Even if you want to buy more auto coverage, you may have trouble affording it.

Getting a quote for a higher amount of coverage with your current car insurance company can be helpful, but getting price comparisons from other insurers will give you a more well-rounded cost estimate.

The Massachusetts Department of Consumer Affairs and Business Regulation gives seven different auto insurance premium comparisons on its website for drivers living in the state of Massachusetts.

You don’t need to continually increase the amount of car insurance coverage that you carry in order to feel safe. While it is not realistic to think that car insurance alone can protect your assets, being a responsible driver is extremely helpful.

Few safe, experienced drivers that carry a reasonable amount of car insurance ever have to worry about being sued.

What happens if you get into an accident with an underinsured driver?

Unlike getting into a collision with an uninsured motorist, underinsured drivers are able to pay for at least some of the damages.

Because underinsured motorists usually do not have enough money to pay for the difference between the total costs of the medical and car repair bills that they have caused, legal action is usually necessary.

If two underinsured motorists were to get into an accident, they would most likely have to pay the balance left over on their own bills. Even if one party is clearly at fault, it is unlikely that either would have the money needed to retain counsel.

Having your car damaged by an underinsured driver doesn’t mean that you will need to file a suit. If you have a car insurance policy that protects you from uninsured and underinsured drivers, your auto insurer will pick up the tab.

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