Personal Injury

How Does Underinsured Motorist Coverage Work?

By David Goguen, J.D., University of San Francisco School of Law
Using your own coverage for claims beyond the other driver's policy limits.

It's no secret that you need car insurance to register your vehicle in most states. Some drivers carry enough coverage to meet their state’s minimum liability insurance requirement, but not necessarily enough to cover all recoverable damages and losses after a car accident. If you're in a crash and the other driver has at least some insurance, your uninsured motorist coverage would not apply. 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. Read on to learn more. (Get the basics on different types of car insurance coverage.)

What Will Underinsured Motorist Coverage Cover?

After a car accident, if you have underinsured motorist coverage, once you have settled a claim with the other driver’s insurance company, you may be able to negotiate with your own insurance company about how much more your case might be worth. Up to the extent of your underinsurance policy limits, you might be able to collect any 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 through your 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 policy. Several months later, you settle your car insurance 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 Your 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 third-party car insurance claim with that company for an amount equal to the policy limits.

You probably will not even have to make a special request for such a letter. When you negotiate your case with the other driver’s insur­ance company, the documents you exchange in finally settling the claim may already include the information you need.

Getting More Information and Legal Help

For more tips on understanding insurance coverage after a car accident, and in-depth information on what to expect at every step in your case, get How to Win Your Personal Injury Claim by Joseph L. Matthews (Nolo). And if you’re thinking about filing a lawsuit after a car accident, you may want to consider talking with an attorney to make sure all your legal bases are covered and your rights are protected. Learn more about what to discuss with a car accident lawyer at your first meeting.

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