Although all drivers are required to have minimum liability insurance, the fact is that often the minimum limits may not be adequate to cover all medical bills. Fortunately, all may not be lost when your bodily injury claim is greater than the policy limits for the at-fault driver’s liability insurance, as underinsured motorist coverage may be available to supplement some of the difference. Underinsured motorist coverage pays for some of your bodily injury claims when the at-fault driver does not have enough insurance to completely pay for your injuries and losses. In other words, underinsured motorist coverage can be used when the at-fault driver does not have the amount of coverage to adequately pay for your medical bills, lost wages, and pain and suffering.
How do I know if I have underinsured motorist coverage?
North Carolina changed the rules for underinsured motorist (UIM) coverage for policies issued or renewed on or after July 1, 2025 (N.C. Gen. Stat. § 20-279.21(b)(4); NC Department of Insurance). Under those policies, underinsured motorist coverage is included in every personal auto policy, including policies that carry only the minimum liability limits of $50,000/$100,000/$50,000. Your UIM limits generally match the highest bodily injury liability limits on your policy (up to $1,000,000), and you cannot choose UIM limits below the state minimum. Policies that cover only commercial or fleet vehicles are treated differently. For more information on liability insurance and liability limits, please see here.
If your policy has not been issued or renewed since July 1, 2025, or your accident happened before your policy renewed, the older rules may apply. They are explained at the end of this page.
Who and what is covered by my underinsured motorist coverage?
Underinsured motorist coverage policies will usually only cover personal injury claims. Property damage is not typically included in underinsured motorist coverage policies, as there are other means to pay for property damage, such as collision coverage. An underinsured motorist coverage insurance policy will provide coverage to the owner of the vehicle, family members, any person driving the vehicle with the owner’s permission, and all passengers. In other words, if an operator is driving your vehicle with permission and is injured in an accident caused by an at-fault driver, your underinsured motorist coverage may be available when the at-fault driver’s insurance is not enough to cover the injuries.
When can I use my underinsured motorist coverage?
The at-fault driver is “underinsured” when all of the liability insurance that applies to that driver adds up to less than your total damages. Your own UIM limits no longer need to be higher than the at-fault driver’s. You generally cannot use your underinsured coverage until the at-fault driver’s insurance has paid, or offered to pay, up to its policy limit, and you must reach a settlement with, or a judgment against, the at-fault driver’s liability insurance first. While the practical application of these rules is more complicated, let’s look at the following hypothetical situations for a better understanding.
Situation 1 – Let’s assume that you are in an accident caused by another driver. Both you and the at-fault driver carry only the minimum required coverage ($50,000/$100,000). Your personal injury claim is worth $80,000. The at-fault driver’s insurance pays its $50,000 limit. Because your policy includes $50,000 of underinsured motorist coverage, you can make a UIM claim for the remaining $30,000.
Situation 2(a) – Now assume the same coverage, but your personal injury claim settles with the at-fault driver’s insurance company for $45,000. The at-fault driver’s $50,000 limit has not been exhausted, and your damages did not exceed the liability coverage, so your underinsured motorist coverage would not be used.
Situation 2(b) – Now assume that your personal injury claim is worth $120,000 and you have $100,000 of UIM coverage. The at-fault driver’s $50,000 policy is exhausted. Your UIM coverage applies to the first dollar beyond what the at-fault driver’s insurance paid, so it can pay the remaining $70,000. Your UIM limit is not reduced by the $50,000 the at-fault driver’s insurance already paid.
Important Note: Remember, the at-fault driver’s liability coverage must be exhausted (paid or tendered) through a settlement or judgment before your underinsured insurance provider is obligated to pay out on the policy.
How Much Will My Underinsured Motorist Coverage Pay?
For policies issued or renewed on or after July 1, 2025, your underinsured coverage can pay up to your full UIM limit on top of what the at-fault driver’s insurance paid. The law no longer allows your UIM insurer to reduce your coverage by a credit for the at-fault driver’s liability payment, or by any other coverage, except workers’ compensation. The example below provides further explanation.
Let’s assume that you are in an accident caused by the other driver. The at-fault driver has the minimum policy amount of $50,000/$100,000, and you have UIM limits of $100,000/$300,000. Your personal injury claim is worth $200,000. The at-fault driver’s insurance pays its $50,000 limit. Your UIM coverage can then pay up to its full $100,000, for a total of $150,000. You would not be able to recover the remaining $50,000 from your underinsured motorist insurance, because your policy does not exceed $100,000 per person for bodily injury claims.
If you are an insured under more than one policy (for example, you are a passenger in a friend’s car and also have your own policy), the UIM limits of those separate policies can generally be added together. The UIM limits for different vehicles on the same policy cannot.
Exception to the General Rule
Generally, the maximum per-person policy limit of the at-fault driver must be exhausted before you can use your underinsured motorist coverage; however, to every rule there is an exception. If several people are injured in the same accident and the at-fault driver’s total per-accident limit is paid out among them, the liability coverage counts as exhausted for each of them, even if no one received the full per-person limit. Provided below is an example to help provide a better understanding.
Let’s assume that you are in an accident caused by the other driver. The at-fault driver has the minimum policy amount of $50,000/$100,000, and you have $100,000 of UIM coverage. You and three passengers are all injured in the accident, and each has medical bills in excess of $50,000. You and the three passengers reach a settlement of $25,000 each, exhausting the at-fault driver’s total liability insurance per accident ($100,000). Under these circumstances, while the at-fault driver’s maximum per-person liability had not been exhausted ($50,000), the total policy limit per accident has been exhausted ($100,000), meaning the liability insurance will not pay out anything else toward the accident. Therefore, you will be able to file a claim with your underinsured motorist coverage provider, and your UIM coverage picks up with the first dollar beyond the $25,000 you were paid.
How Underinsured Motorist Coverage Worked Before July 1, 2025
For policies issued or renewed before July 1, 2025, different rules applied. The minimum liability limits were $30,000/$60,000/$25,000, and a policy with only those minimum limits did not include underinsured motorist coverage. UIM was available only when your UIM limits were higher than the at-fault driver’s liability limits. It also generally paid only the difference between the two: with $50,000 of UIM and an at-fault driver who had $30,000 of liability coverage, UIM could pay up to $20,000 ($50,000 – $30,000). If your claim involves an older policy, speak with an attorney about which rules apply.
Will my insurance premiums increase if I use my underinsured motorist coverage?
Your insurance premiums should not increase if you open a claim under your underinsured motorist coverage. Insurance companies are not supposed to increase your monthly premium rates for accidents that are caused by an at-fault driver. With this being said, opening a claim could potentially affect you in the future when you are adding or changing your policy, as insurance providers use prior claims as a factor when determining premium amounts and deciding whether or not to extend insurance. If your current provider does deny future coverage, you may decide to change insurance providers, as non-fault motorist claims are not easily accessible to other insurance providers.
