Underinsured Motorist Coverage: How It Works

Using your own coverage for claims beyond the other driver's policy limits.

Some drivers carry enough insurance to meet the state’s minimum liability insurance coverage requirement, but not necessarily enough to cover all damages for any particular accident that might occur. If this happens to you, since the other driver has at least some insurance, your uninsured motorist coverage would not apply in this kind of situation. However, if you have what is called “underinsurance coverage” in your own vehicle policy, you may be able to collect compensation beyond what the other driver’s insurance will pay. (To learn about uninsured motorist coverage, check out Uninsured Motorist Car Insurance Coverage: The Basics.)

How Underinsured Motorist Coverage Works

After the accident, once you have settled a claim with the other driver’s insurance company, negotiate with your own insurance company about how much more than this amount your case is worth. Up to the extent of your underinsurance policy limits, you can collect this extra amount from your own company. However, any medical payments coverage you have collected from your own insurance company will be deducted from the amount you collect from it in underinsurance coverage.

Let's look at an example to understand how this might work. Assume that, in order to pay medical bills right after an accident, you collect $2,000 from your own insurance company under the medical payments coverage of your automobile policy. Several months later, you settle your accident claim against the other driver for $15,000, which was the limit of the other driver’s liability coverage.

Your own underinsurance coverage has $50,000 policy limits. You convince your own insurance company that your claim is worth a total of $25,000. Under your underinsurance coverage, you can collect an additional $8,000 -- the $25,000 total value of your claim minus the $15,000 you collected from the other person’s liability insurance, and minus the $2,000 medical payments.

Collecting Under Underinsured Motorist Coverage

To collect under your underinsured motorist coverage, you must first show your insurance company that the other driver was underinsured. Obtain from the other driver’s insurance company a letter that includes the policy limits for that person’s liability coverage, and a statement that you have settled your claim with that company for an amount equal to the policy limits.

You probably will not even have to makeâ

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