Legal Definitions - underinsured-motorist coverage

Underinsured-motorist coverage is a type of automobile insurance that provides financial protection for you and your passengers if you are involved in an accident caused by another driver who has liability insurance, but whose policy limits are not high enough to cover the full extent of your injuries, medical expenses, lost wages, or property damage. In such situations, your underinsured-motorist coverage can help pay for the remaining costs that exceed the at-fault driver's insurance limits, up to the limits of your own policy.

• Scenario 1: Medical Bills Exceed At-Fault Driver's Coverage
  Imagine you are involved in a severe car accident where the other driver, who is at fault, only carries the minimum state-required liability insurance of $25,000 for bodily injury. Your medical bills, physical therapy, and lost income from being unable to work total $75,000. The at-fault driver's insurance pays its maximum of $25,000, leaving a $50,000 gap.

  How it illustrates the term: Your underinsured-motorist coverage would step in to cover the remaining $50,000 in damages (up to your policy's limits), ensuring you are not personally responsible for the shortfall caused by the at-fault driver's insufficient insurance.

• Scenario 2: Significant Property Damage and Multiple Victims
  A distracted driver causes a multi-car pileup, totaling your brand-new vehicle and causing minor injuries to you and your two passengers. The at-fault driver has a liability policy with a $50,000 per accident limit. Your car replacement cost is $45,000, and the combined medical bills for you and your passengers total $20,000. The total damages are $65,000, but the at-fault driver's insurance can only pay $50,000.

  How it illustrates the term: After the at-fault driver's insurance pays its maximum $50,000, your underinsured-motorist coverage would cover the remaining $15,000 in damages (up to your policy's limits), ensuring that your vehicle is replaced and medical costs are fully covered despite the other driver's inadequate coverage.

• Scenario 3: Long-Term Disability and Lost Earning Capacity
  You are hit by another vehicle, and the accident leaves you with a permanent injury that significantly reduces your ability to work in your profession, leading to a substantial loss of future income. The at-fault driver has a liability policy with a $100,000 limit. While their insurance covers your initial medical bills, the projected loss of your earning capacity over several years is estimated at $300,000.

  How it illustrates the term: The at-fault driver's insurance pays its $100,000 limit, but this is far from sufficient to compensate for your long-term financial losses. Your underinsured-motorist coverage would then provide the additional funds (up to your policy's limits) to help compensate for the lost earning capacity, protecting you from the severe financial impact of the accident.