While there are some states that offer uninsured and underinsured property damage coverages normally state required uninsured/underinsured coverages are for bodily injuries and not damage to a vehicle. Thus uninsured / underinsured motorist BI may be required in some states as part of a basic auto insurance policy but uninsured / underinsured property damage (PD) usually is not.

In general, if you are at fault and hit and totaled an expensive vehicle, such as a Mercedes worth $50,000, your property damage liability insurance would pay the actual cash value (ACV) of the vehicle or up to the limits of your property damage liability coverages. If the limits of your PD coverages did not cover the ACV of the Mercedes Benz then you personally could be held liable for the remaining amount. This is why it is a good idea to purchase enough of property damage liability insurance to cover the amount of damage your car might do to another vehicle or object.

If you select limits that are too low, you could be putting yourself at risk financially. As in the example above, if either you or a driver covered by your policy cause a serious accident where damages exceed your limits, you will be held responsible for the amount above your limits. To make that payment, you could be forced to liquidate property, savings and other assets, or your future earnings could be attached. By purchasing liability limits to account for both your current assets and future net worth, you can help protect yourself against this risk.

Back to your question about underinsured coverages. If the Mercedes owner did have underinsured motorist property damage (UMPD) then what this coverage does normally is if the owner did not have collision coverage (which is unlikely for an owner of an expensive car), UMPD would pay up to a certain amount for repairs to the insured car (some states have limits at $3500, some are lower and some are higher).

If the owner did have collision coverage, Underinsured Motorist Property Damage coverage only pays your Collision deductible (in some states). So the person would have to use their own insurance coverage instead of going after your insurance for the damages you caused. This does not however stop his insurance company from subrogating with you for the monies they paid out for an accident that was your fault.

Why a person would buy underinsured motorist bodily injury insurance or underinsured motorist property damage insurance with higher limits would be based on their vehicle, financial situation, state required coverages, etc. If a person has collision coverage on their vehicle then underinsured motorist PD may not be needed. Underinsured motorist BI may benefit individuals without health insurance so that they can be better covered for injuries, damages or death caused by the negligence of a person with insufficient insurance.