Underinsured Motorist Coverage
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?
In North Carolina, if your insurance policy is greater than the minimum required amount, which is $30,000/$60,000 in North Carolina, then your policy will include underinsured motorist coverage. For more information on liability insurance and liability limits, please see here.
This means, for example, that if your liability insurance is $50,000/$100,000 or $100,000/$300,000, then your insurance policy is required by North Carolina law to include underinsured motorist coverage. However, if your vehicle is covered by only the minimum policy requirements, as mentioned above, your insurance will not provide underinsured motorist coverage. (Please note that you will be provided with uninsured motorists coverage. For more information, please visit 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 depending on the at-fault driver’s policy limit.
When can I use my underinsured motorist coverage?
Generally speaking, underinsured motorist coverage is available when your coverage is greater than that of the at-fault driver’s. In other words, if you are in an accident in which the at-fault driver only carries the minimum insurance policy required by law ($30,000/$60,000), and your coverage is greater than that amount, then you may be able to use your underinsured motorist coverage once the at-fault driver’s policy is exhausted. You generally cannot use your underinsured coverage until the at-fault driver’s insurance has paid up to their policy limit amount. Furthermore, you must reach a settlement with the at-fault driver’s liability insurance before your underinsured motorist coverage is obligated to pay. While the practical application of these rules is significantly 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 only carry the minimum required coverage ($30,000/$60,000). In this instance, you will not likely have underinsured motorist coverage, as it is generally not available with minimum policy amounts.
Situation 2(a) – Let’s assume that you are in an accident caused by the other driver. The at-fault driver has the minimum policy amount ($30,000/$60,000). However, you have a higher policy amount of ($50,000/$100,000). Your personal injury claim ends up settling with the at-fault driver’s insurance company for $25,000. Under these circumstances, while you do have underinsured insurance coverage available because your policy amount is greater than the at-fault driver’s, you still would not be able to use it. Underinsured motorist coverage may only be used when the at-fault driver’s policy amount is exhausted. Therefore, you could only use your underinsured insurance if your personal injury claim was greater than $30,000 (the policy limit amount of the at-fault driver).
Situation 2(b) – Now, let’s assume the same facts from example 2, except that your personal injury claim is worth $40,000. Under these facts, you would likely be able to use your underinsured motorist coverage. Here, the $30,000 policy of the at-fault driver’s liability policy would be exhausted, as your personal injury claim is worth $40,000; the remaining $10,000 would come from your underinsured motorist coverage. It is important to note that because your underinsured motorist coverage policy limit in this hypothetical situation is $50,000, your underinsured motorist policy would be able to provide the additional coverage of $10,000.
Important Note: Remember, you must reach a settlement or judgment before your underinsured insurance provider is obligated to pay out on the policy.
If your insurance coverage amount is greater than that of the at-fault driver’s, then your underinsured coverage can pay up to the difference between your and the at-fault driver’s policy limits. In other words, if the at-fault driver has an insurance policy amount of $30,000, and your policy limit is $50,000, your underinsured coverage can pay up to $20,000 ($50,000 – $30,000), provided that your bodily injury case is larger than the at-fault driver’s policy limit ($30,000). The illustration 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 $30,000/$60,000 and you have a higher policy limit of $50,000/$100,000. Your personal injury claim is worth $60,000. Under these facts, you would likely be able to use your underinsured motorist coverage. Here, the $30,000 policy of the at-fault driver (liability coverage) would be exhausted, as your personal injury claim is worth $30,000 more than the at-fault driver’s liability coverage. Therefore, because your insurance for maximum bodily injury is $50,000 under your underinsured motorist coverage policy, you would be able to open a claim through your underinsured coverage for up to $20,000 ($50,000 – $30,000). Unfortunately, you would not be able to recover the remaining $10,000 from your underinsured motorist insurance, as your policy will not exceed $50,000 per person for bodily injury claims.
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 you are paid less than the maximum per-person limit of the at-fault driver’s liability policy, you may recover from your underinsured policy if you can show that this occurred because of multiple claims and that the total per accident limit of the insurance policy has been paid and reached by the at-fault diver’s liability insurance. In other words, if there are multiple people injured in the accident, and the total per accident policy limit is exhausted between the injured, then you can use your underinsured motorist coverage. 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 a minimum policy amount of $30,000/$60,000; however, you have a higher policy amount of $50,000/$100,000. You and three passengers are all injured in the accident and each has medical bills in excess of $30,000. You and the three passengers reach a settlement of $15,000 each, exhausting the at-fault driver’s total liability insurance per accident ($60,000). Under these circumstances, while the at-fault driver’s maximum per person liability had not be exhausted ($30,000), the total policy limit per accident has been exhausted ($60,000), meaning the liability insurance will not pay out anything else toward the accident. Therefore, because the $60,000 had been exhausted before the $30,000 (due to the number of people injured), you will be able to file a claim with your underinsured motorist coverage provider.
Furthermore, while underinsured motorist coverage will usually only pay up to the difference between the at-fault driver’s policy amount and your policy amount ($50,000 – $30,000 = $20,000), under these facts, your insurance will pay up to $35,000 ($50,000 – $15,000). This is because underinsured motorist coverage picks up with the last dollar paid to you by the at-fault insurance policy, so long as one of the policy limits is exhausted (either $30,000 or $60,000).
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.
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