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Underinsured and Uninsured Motorist Coverage Explained

November 09 2018 | Blog

    Underinsured and uninsured motorist coverage, are two distinctive car insurance policies that are often mixed up. In this article, we explain the difference and explain why it may be a good idea to have one or the other.


    Consider the following scenario: on your way to work, you are hit by a driver who failed to yield the right of way. As a result, your car sustains major damage and you suffer a bodily injury that will require treatment and perhaps a period of rehabilitation. Since the other driver was clearly at fault in the accident, you try to gather all the possible evidence of their negligence. You manage to obtain testimonies from the witnesses of the mishap as well as the police report that supports your version of events. You decide to make use of all the legal options available to you in order to ensure that the wrongs you experienced will be rectified. Primarily, you’d like to secure financial compensation for your medical expenses as well as the cost of the repairs to your car. However, when you contact the at-fault driver’s insurance company, it turns out that the damages you’re claiming greatly exceed the maximum amount of the driver’s coverage! It now appears that you will have to cover the difference out of your own pocket.


    The Scale of the Problem

    Chilling though it may seem, the scenario described above is neither theoretical nor exaggerated. In fact, it is an all-too-common reality experienced every day by many drivers. Even though virtually every state has adopted some form of mandatory car insurance, nationwide, the percentage of uninsured motorists stands at 12.6. This means that, if you get into an accident, there is 1 in 8 chance that the at-fault driver will have no insurance.

    In Kentucky, this ratio is a little lower (estimated at 11.5%), however, Tennessee – with the rate of 20% or 1 in 5 drivers – is one of the states with the highest estimated percentage of uninsured motorists. It stands to reason then, that the number of drivers who only have a basic insurance with low limits is even greater.

    Being involved in an accident in which the at-fault driver is uninsured or underinsured can be stressful and costly. The good news is that as a motorist, you can prepare yourself for such situations.

    An effective way of addressing this problem is to buy uninsured or underinsured motorist coverage. These two insurance coverage types can provide additional financial resources to cover your financial losses if the at-fault driver has no liability insurance or if it is insufficient.


    Underinsured vs. Uninsured – How They Differ

    The example described in the introduction involved the case of an underinsured driver. The person who caused the accident did have basic liability insurance but the coverage limits the driver carried were insufficient to cover all the damage experienced by the injured party. In Kentucky,  the minimum liability limits required by the law are:

    • $25,000 for bodily injuries sustained by one person
    • $50,000 for all bodily injuries sustained by all the people injured in the accident
    • $10,000 for all property damage

    In Tennessee, the limits for bodily injuries per person and per accident are the same. The limit for all property damage is higher – $15,000. It is important to note that, even though these minimum limits may seem like they should be enough to cover the damage in most cases, the reality is that in the event of a serious injury, they are woefully insufficient.

    Underinsured motorist coverage (UIM) and uninsured motorist coverage (UM), Even though often used interchangeably, are actually two different types of insurance policies. The former would be useful in our example scenario. If you have it and you are injured by a driver whose liability coverage limits are insufficient to cover your losses, your UIM policy may help you pay for the damage. The uninsured motorist coverage, on the other hand, can help you pay for medical expenses and cover other costs if you are injured in an accident caused by a driver who has no insurance at all.


    “Stacking” Your Policies in Kentucky and Tennessee

    ‘Stacking insurance policies’ refers to the option of combining the maximum limits of your policy’s coverage based on the number of insured vehicles. For example: let’s say you own two cars. You buy UIM/UM insurance with the $25,000 liability limit per injured person and $50,000 per accident and you decide to insure both of your vehicles. If you select the option of stacking, in the case of being injured by an uninsured/underinsured motorist, you will be able to recover as much as $50,000/$100,000 from your insurer – twice as much as the limit of your insurance – no matter which of your cars you were driving at the time of your accident.

    The laws with regards to stacking differ from state to state. In Kentucky, drivers are able to stack their policies in order to obtain maximum recovery. In Tennessee, however, you will only be able to recover the amount of your biggest policy.

    Even though uninsured motorist coverage is obligatory in some states, neither Kentucky nor Tennessee mandate that drivers obtain one. In Kentucky, uninsured motorist coverage comes by default with most car insurance policies but a driver may opt out from it by signing a waiver with their insurance company. Nevertheless, as mentioned before, being injured in an accident caused by an uninsured or underinsured driver is a real possibility in both states. Therefore, each vehicle-owner should do well to carefully consider both pros and cons of having such insurance. This will allow them to make an informed decision in order to ensure they will be secured financially should such accident ever happen.

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