Underinsured motorist coverage, or UIM, may be one of the least understood types of car insurance, but it’s increasingly important in an era of rising rates and precarious driving. Rising prices can easily leave drivers underinsured — sometimes unknowingly — and this key coverage gives drivers a way to recover their losses if they’re in an accident with an at-fault driver who doesn’t have enough insurance to cover the damages.
What is underinsured motorist coverage?
Underinsured motorist coverage helps to cover medical bills and other costs for you or your passengers if you’re hit by a driver whose liability insurance isn’t sufficient to cover your bills.
Liability insurance is required for all car owners in every state but New Hampshire. It’s a legal requirement because it ensures that at-fault drivers will have the insurance coverage to pay for the damages they cause without individuals having to resort to lawsuits in order to recover their losses. And because some drivers still skirt the legal requirements and choose not to purchase liability coverage, uninsured motorist coverage exists — and is mandatory in some states — so that drivers who aren’t at fault have a way to get an insurance payout in the event of an accident.
But as accident rates and healthcare costs rise, state minimum liability limits often aren’t enough to cover your costs after an accident. That’s where underinsured motorist coverage comes in: to pick up the bill when the at-fault driver’s liability limits are exhausted.
Underinsured motorist coverage is more important than ever
Underinsured motorist coverage isn’t a new product, but it may be an increasingly important part of your policy as the number of drivers without sufficient liability coverage grows.
About one in three drivers in the U.S. was either uninsured or underinsured in 2023, according to the latest study by the Insurance Research Council (IRC) — but underinsured drivers, many of whom carry state minimum coverage, made up over half of that group. That’s a significant increase compared to pre-pandemic years, when more affordable insurance premiums made it easier for most drivers to maintain high liability limits.
Types of underinsured motorist coverage
Like liability and uninsured motorist coverage, underinsured motorist coverage falls into two categories: bodily injury coverage and physical damage coverage.
- Underinsured motorist bodily injury (UIMBI): This coverage pays for medical and related costs for you and your passengers if the at-fault driver’s bodily injury liability insurance is insufficient. This is the most common type of underinsured motorist coverage.
- Underinsured motorist property damage (UIMPD): This coverage pays for physical damage to your car if the at-fault driver’s property damage liability is insufficient. This type of UIM is less common and may not be available in every state.
Both types of insurance are mandatory in certain states in combination with uninsured motorist coverage. In states where UIM coverage is not required, it may still be available, and in some states insurance companies are required by law to offer it.
How does stacking work with underinsured motorist coverage?
Just like uninsured motorist coverage, underinsured motorist coverage allows policyholders to “stack” coverage limits between vehicles and even across multiple policies. This essentially entails combining underinsured motorist coverage from multiple vehicles or policies in the same household to expand your coverage limits. By stacking coverage, you can extend the maximum amount your underinsured motorist coverage can pay out on a single claim.
Underinsured vs. uninsured motorist coverage?
Underinsured and uninsured motorist coverage have a similar function: they allow drivers hit by at-fault operators with insufficient liability coverage to file first-party claims to recover their losses. However, they play that role in slightly different situations.
Uninsured motorist coverage deals with accidents caused by drivers with no liability insurance whatsoever, while underinsured motorist coverage comes into play in accidents where the at-fault driver has some liability coverage — just not enough to cover all the damages they caused.
Both types of coverage are becoming more important as insurance costs rise nationwide. The higher the cost of car insurance, the more drivers on the road are likely to have no insurance. Drivers are also more likely to opt for affordable state minimum policies that leave them — and anyone they’re unlucky enough to hit — without enough insurance coverage to deal with the full cost of the accident.
Do all states require underinsured motorist coverage?
Not all states require drivers to purchase underinsured motorist coverage. Of the 21 states and Washington, D.C., that require drivers to carry uninsured motorist coverage, only 11 also require drivers to purchase underinsured motorist coverage:
- Connecticut
- Kansas
- Maine
- Minnesota
- Nebraska
- New Jersey
- North Carolina
- North Dakota
- Oregon*
- South Dakota
- Vermont*
* In Oregon and Vermont, uninsured and underinsured motorist coverage are combined as a single type of coverage.
In several other states, car insurance companies are required to offer underinsured motorist coverage on every car insurance policy, but drivers have the option to decline this coverage in writing. If you have a robust health insurance policy, you may be tempted to decline the coverage in order to save money — but there may be good reasons to maintain UIM coverage in addition to your medical insurance. Unlike health insurance, UIM has the potential to cover ongoing costs like lost wages, transportation costs and pain and suffering, even after the at-fault driver’s liability has been exhausted.
Before removing optional UIM coverage from your policy, consider who usually rides in the car with you. You may have great health insurance, but if your other passengers don’t, they will be stuck paying for their injuries out-of-pocket if they are hurt by an uninsured driver while in your car. Also, keep in mind that UIM coverage usually doesn’t have a deductible. If your health insurance has a high deductible, you might save money by having your initial injuries paid for by your car insurance instead.
— Shannon Martin, Bankrate insurance expert
Frequently asked questions
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