Question: How does underinsured motorist bodily injury coverage work? I know it’s different than uninsured motorist, but how?
Answer: You’re correct. Underinsured motorist bodily injury is different from uninsured motorist bodily injury, even though in some states the two coverages are bundled together.
Uninsured motorist bodily injury (UMBI) is used if you’ve been injured in an auto accident and the at-fault party was found to be driving without insurance. Underinsured motorist bodily injury is used when the at-fault party that hit you had auto insurance coverage, but their bodily injury liability limits are insufficient to cover all of your medical expenses.
Uninsured motorist bodily injury and underinsured motorist bodily injury (UNDUM) coverage both come with per person and per accident limits, like your bodily injury liability coverages.
Your UMBI coverage pays up to the limits you chose at the inception of your policy. (See Uninsured motorist: What you need to know.) For example, if your policy has limits of 25/50 for uninsured motorist bodily injury, then the maximum payout per person is $25,000, and the maximum payout for all people injured in one accident is $50,000.
Underinsured motorist coverage is more complicated because what you receive from your own insurance company can be added to what the at-fault driver's policy has paid, or your insurance company may subtract any money you've already been paid.
With "excess coverage," as it's known, if you have UNDUM of 50/100 and you have $100,000 of medical expenses caused by an at-fault driver who has only $25,000 of bodily injury liability coverage, then you’d be able to collect the whole $50,000 from your UNDUM policy. You’d then have a total of $75,000 going toward your bills.
If instead you have UNDUM that isn’t excess coverage, then the $25,000 the other insurer paid you would reduce your underinsured motorist bodily injury by that much and leave you only $25,000 to claim. You would end up with only a total of $50,000 going toward your medical expenses from the other insurer and your own coverages.
Whether you have excess coverage depends on your state insurance laws. In some states, such as Connecticut, you can choose which way you want your UNDUM coverage to pay out. If you choose excess coverage, then you’ll pay a bit more for this benefit.
Speak to your auto insurance agent to find out more about your underinsured motorist coverages, especially if they are, or can be, excess coverage. If not, then you may want to raise your UNDUM limits. When making any changes to your policy, it's a good idea to shop around to make sure you are getting the most affordable car insurance rates.