Uninsured and Underinsured Automobile Insurance: Why the Extra Coverage Matters

August 19, 2016 10:20 am

Richard J. Anzelone, J.D.

Partner & CCO

I was at family camp recently and the topic of uninsured/underinsured coverage came up in conversation; in talking with other families, I was amazed at how little most people knew about their auto insurance policies. As the name suggests, this part of your auto insurance policy is rather self-explanatory. However, it is my opinion that this is one of the most underappreciated and misunderstood coverages of an auto insurance policy.

Understandably, there are several questions that arise from this topic.  I will briefly examine these questions below to give you some guidance when purchasing or renewing an auto insurance policy.

State Requirements
There are some states that actually require its residents to have a minimum amount of uninsured/underinsured motorist coverage as part of their auto insurance policy, but many do not.  And even though every state except New Hampshire requires its residents to have at least liability coverage, there are many people who still drive without coverage all together. This is where uninsured motorist coverage will protect you in the event of an accident.  In states that require at least a minimum amount of liability coverage, the required minimums simply may not be enough in the event of an accident.  This is where underinsured motorist coverage can be extremely important.

What is Uninsured Motorist Coverage?
Uninsured motorist coverage is designed to protect you from personal injuries you suffer in an automobile accident that is caused by another driver who does not have auto insurance.  Whether state law requires insurance or not, there are people who just don’t purchase insurance for various reasons- so, why take the chance?   Uninsured motorist coverage also protects you when someone is liable for an accident but takes off.  This is called a hit-and-run accident where the driver of the other vehicle is unknown.  As you can see, these types of scenarios are probably more likely to happen when you really stop and think about it.


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What is underinsured motorist coverage?
This is insurance that will cover you in the case where someone else is liable for an accident and that person does not have enough liability insurance to cover your personal injuries.  In this case, you would make a claim for your injuries against the at-fault person’s insurance policy, up to the limits of the policy.  At this point, if your personal injuries are more than the limits, you would then file a claim against your own insurance company under your underinsured motorist coverage.  Once again, if you really stop and think about it, it is also a likely scenario that could unfold due to a car accident.

Should I purchase uninsured and underinsured motorist coverage?  If so, how much?
As you have already probably deduced from this article, the answer to the first part of this question is a resounding “YES”.  You should purchase this coverage even if it is not required by your state.  If you think about the scenarios outlined above, do you really want to take the chance that everyone driving on the road has sufficient insurance coverage in the event of an accident?  Do you really want to take the chance that everyone on the road ACTUALLY carries insurance at all?  Personally, I do not and most people I talk to about this subject matter do not either, especially when they really understand what is at stake.

So once you have made the decision to purchase this type of insurance whether your state requires it or not, how much should you purchase?  This is obviously a personal decision and sometimes dictated by how much you can afford.  In my opinion, if you can afford to purchase the maximum amount offered by your insurance company, I would opt for that amount.   In this day and age, it seems that medical bills and personal injury lawsuits can escalate very quickly so it is not unusual to have a car accident where you sustain $100,000 or more in personal injury damages.  But once again, this is a personal decision.

It probably goes without saying that most people do not want to take a chance with their own financial well-being in the case of an accident caused by another person.  I personally believe that this is one of the most important and overlooked coverages available. Therefore,  it is important to really think about your own personal situation, analyze the statistics put out there by the insurance industry and make an informed decision.  The most recent study of uninsured/underinsured motor coverage was completed in 2014 based on the year 2012.   As mentioned above, in 49 states and the District of Columbia, it is against the law to drive without car insurance. Nevertheless, more than 12 percent of all U.S. drivers are uninsured.  That doesn’t sound like a lot statistically, so check your own state’s statistics.  But like I always say:  Statistics don’t matter when YOU are the victim.


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One last thing: Most insurance companies are private entities. With that being said, insurance companies are allowed to do what they want in terms of raising rates. In my experience, I have spoken to my insurance agent and a few lawyers who have explained to me that many insurance companies will only raise the rates on insurance premiums if their customer was at fault in a collision and not due to a claim under their uninsured/underinsured coverage.   However, you need to check your own policy, talk to your agent and/or lawyer to decide how to use these provisions in your policy to your advantage.

Richard Anzelone, J.D. is Managing Director and CCO at StrategicPoint Investment Advisors in Providence and East Greenwich. You can e-mail him at ranzelone@strategicpoint.com.

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Rick’s opinions and comments expressed on this site are his own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.