October 19, 2010

The Differences Between Underinsured And Uninsured Motorist Auto Insurance Coverage

Understanding the fine print on car insurance policies can be difficult. While many factors determine your insurance rate, it is also important to know what claim situations your particular policy covers. Not all states require uninsured motorist coverage, nor do all states require underinsured motorist coverage. There is a distinct difference between these two categories, and it is important to not only understand how they function, but to know if your car insurance covers both.

What happens if you are in an accident and the other driver is at fault and does not have insurance? Typically, these drivers will not have enough money to try and get through a court proceeding. This is the situation where uninsured motorist coverage comes into play. In this case, you would file a claim with your own insurance to be reimbursed for various costs and losses associated with the claim. Be aware that uninsured motorist coverage typically only covers medical bills, pain, suffering and future earnings that are lost due to injuries. You will notice that this list does not include damage to your car. This is covered through your collision coverage. The good thing about uninsured motorist coverage is that, by state law, your premiums will not go up if you have to use it.

Now, change the scenario slightly. What if you are in an accident and the other driver does not have high enough limits to pay for the losses? This is where underinsured motorist coverage comes in. You would file a claim with your insurance company to compensate you for the difference. For example, if your underinsured coverage limit was $85,000 and the other driver only had enough coverage to pay for $30,000, your underinsured coverage would pay for the difference if your losses were more than $30,000. Be aware that some states treat this coverage a bit differently. Some state laws stipulate that you would be able to receive up to the total of the other driver's limit and your limit. In the example above, that would be $115,000. Other states say that you would only be able to receive an amount up to the difference of the two limits.

Statistics show that 14 percent of drivers do not have car insurance. Because of this, most drivers purchase policies with more uninsured motorist coverage than underinsured. Your collision coverage should also be on par because uninsured coverage does not pay for damages to your car. Use collision coverage to pay for your car and uninsured to cover your medical bills and losses from your job. Also research what types of insurance your state laws require. This helps determine what limits you need to purchase.