Uninsured and Underinsured Motorist Coverages

Compulsory Limits in some States Are Very Low

Auto Insurance policy with keys and glasses

While auto liability insurance is compulsory in most states, approximately 13.0% of vehicle drivers are uninsured according to the Insurance Research Council. This means that if you are injured in an auto accident for which another driver is responsible, there's a one in eight chance the driver will have no insurance. When the at-fault driver is uninsured, you will have to rely on your own insurance (or your wallet) to pay your medical bills. Uninsured motorist coverage was created to address this problem.

UM Versus UIM

Uninsured motorist (UM) coverage protects your company against auto accidents caused by drivers that have no liability insurance. In some states, UM coverage also applies if the at-fault driver has insurance but the limit is less than the compulsory amount. Underinsured motorist (UIM) coverage applies when the at-fault driver has insurance but the limit is insufficient to cover your losses. UIM coverage is not available in all states.

UIM coverage is important because many drivers purchase the minimum amount of liability insurance required by law. This limit is often low. Some states require only $15,000 per person and $30,000 per accident for bodily injury. If you are injured in an auto accident and the at-fault driver has purchased the minimum required amount, the limit may be insufficient to cover your medical expenses. Unless you have UIM coverage, you may be stuck paying those expenses yourself.

Many vehicle owners purchase the minimum required limit of auto liability insurance. This limit may be very low.

Laws Vary by State

UM and UIM requirements vary from state to state. These coverages are mandatory in some states but can be rejected in writing in others. Some states require insurers to offer a UM/UIM limit equivalent to the liability limit on the policy. The policyholder may have the option to reject that limit and choose a lower one. In most states,​ the UM/UIM limit cannot exceed the auto liability limit.

UM coverage may be added to a business auto policy via an endorsement. Where UIM is available, it may be provided in conjunction with UM or written under a separate endorsement. Each state has developed its own UM and UIM endorsements, which are published by ISO.

A Unique Coverage

UM and UIM are liability coverages that pay damages to the insured rather than to a third party. UM insurance covers sums the insured is legally entitled to recover as damages from the owner or operator of an uninsured vehicle. That is, it covers damages the responsible party (or his or her insurer) would have paid had he or she purchased auto liability insurance.

UM laws initially covered bodily injury only but some states have extended their statutes to cover property damage as well. The limit provided for UMPD coverage is generally low, such as $3500. Typically, UMPD does not apply to any vehicle insured for collision.

Stacked Limits

More than half the states in the U.S. allow UM limits to be stacked. Stacking applies when multiple vehicles are insured for UM or UIM. When stacked limits are allowed, the policyholder can combine the UM/UIM limits for all autos covered for UM/UIM and apply that combined limit to a single auto.

For example, suppose you own two autos, each of which is covered for UM at a $300,000 combined single limit. You are driving one of the autos when you are injured in an accident caused by an uninsured driver. The UM limit available to you will be $600,000.

Some states permit stacking only when multiple vehicles are insured under separate policies. Others permit stacking if vehicles are insured under the same policy. Some states permit insurers to exclude stacking under their auto policies.

Who's Covered

While it may be added to a commercial auto policy, UM coverage is designed for personal auto policies. The section entitled Who Is An Insured typically includes you (the named insured) and any resident family member. If your business is a sole proprietorship, you and your family members are insureds while you are pedestrians and while you are driving or occupying a covered auto. If your business isn't a sole proprietorship, the reference to “family members” will not apply.

UM coverage also applies to any occupants (other than family members) of a covered auto, and anyone entitled to recover damages on behalf of an insured. For example, suppose a passenger of a covered auto is killed in an accident caused by an uninsured driver. The deceased's spouse may be entitled to damages under UM coverage on the deceased’s behalf.

Does a Business Need UM Coverage?

Should you buy UM/UIM coverage for your business? There are several things to think about before making this decision. First, you should be aware of the workers compensation exclusion that appears in many UM endorsements. The exclusion applies to any loss for which an insured is entitled to receive payments under a workers compensation law. That is, if an employee of yours sustains injuries on the job in an auto accident for which he is eligible to receive workers compensation benefits, your UM coverage will be excess of, and will not duplicate, those benefits.

UM coverage will not duplicate benefits an injured employee is entitled to receive under a workers compensation law.

A second consideration is cost. Your agent or broker can obtain quotes for various limits. Finally, you should consider other resources you might have (besides UM insurance) to pay for physical injuries or property damage that results from auto accidents caused by uninsured drivers. Some examples are listed below. Your agent can help you decide whether you should buy UM/UIM coverage or rely on other insurance to cover losses.