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Uninsured / Underinsured Motorist Coverage

An Accident Waiting to Happen
Car accidents happen in the blink of an eye – a split second that turns a casual drive into a frightening collision. It doesn’t take long for panic to set in. You become worried about your passengers, yourself and your vehicle. One of the few calming factors during all of the chaos is knowing that this is what insurance is for. Accidents happen and insurance comes to the rescue. Right? Well, not always.

What if the accident isn’t your fault and the other driver doesn’t have coverage? Who pays for the auto repairs and medical bills related to the crash? These are some important questions to ask – particularly before an accident like this occurs. We place a lot of trust in other drivers (strangers) to abide by the rules and have adequate coverage in the event of an accident. While we know accidents are bound to happen, we also know that people don’t always follow the rules. It’s time to learn how to protect yourself, your family and potentially your business against auto accidents involving uninsured or underinsured drivers.

Risky Roads
Every day, millions of uninsured drivers get behind the wheel. The most recent study by the Insurance Research Council (IRC) revealed that 12.6% of U.S. drivers (about 29.7 million) are uninsured.¹ That translates into roughly one in eight drivers operating a vehicle without proper coverage. The data also indicated that claim payments related to uninsured motorist claims can exceed $2.5 billion a year (excluding fatalities and total permanent disability claims). These concerning numbers clearly illustrate that uninsured drivers pose a significant financial risk to other motorists. The good news is that insureds have options to protect themselves from this exposure.

The Safest Route
Drivers can choose to add additional coverage to their current auto policies. Uninsured motorist coverage (UM) was originally introduced in the 1950s and provides coverage for bodily injury resulting from a motor vehicle accident caused by an at-fault driver who is uninsured or avoided responsibility (a hit-and-run scenario). However, it does not provide coverage when a negligent party’s insurance limits aren’t high enough to fully compensate the injured party. To close this gap, underinsured motorist coverage (UIM) was introduced. Most states expanded the UM statute to include UIM, but a few states enacted UIM separately.

State law governs coverage requirements and controls the circumstances required for coverage to apply. This is outlined in specific state endorsements, and there are no uniform endorsements. If the law changes during a policy term, the coverage automatically changes to comply. UM / UIM is now mandatory in 23 states on all personal and commercial auto policies, and insurers are required to offer it in nearly every state.

Depending on the jurisdiction, UM may apply when:

  • An at-fault driver has no auto liability insurance
  • An at-fault driver has auto liability coverage but purchased less than the minimum limit required by law
  • The insurance company of the at-fault driver denies coverage
  • The insurance company of the at-fault driver becomes insolvent
  • The insurance company of the at-fault driver offers coverage on a conditional basis or with reservation
  • The accident is a hit-and-run and neither the owner nor the operator of the vehicle can be identified

In order to determine if UIM coverage applies, a comparison is made between the coverage limits carried by the negligent driver and the UIM limits carried by the injured insured. Low limits can impact coverage, and auto liability limits are payable per accident. If two people are injured, they share the limit; if three people are injured, they share the same limit. If the at-fault driver has a policy limit of $10,000 and the total cost for bodily injuries exceeds this amount, the at-fault party is underinsured. UIM will cover the difference.

Personal vs. Commercial Vehicles
Owners of both personal and commercial vehicles can benefit from these coverages. When added to a personal auto policy, UM / UIM coverage is provided for the named insured and his / her family while these individuals occupy any automobile or are pedestrians at the time of injury. If a commercial policy is written with an individual as the named insured, coverage is provided for the individual, family members and anyone else occupying a covered vehicle. If a commercial policy is written with a partnership, LLC, corporation or any other form of organization as a named insured, coverage is provided for anyone occupying a covered vehicle.

Persons most likely to be commercial claimants are employees who are covered by workers’ compensation for work-related injuries. Commercial auto policies exclude UM / UIM if workers’ compensation benefits are paid. As a result, some commercial insureds reject UM / UIM coverage if it is permitted by law, but we strongly advise rejecting with caution. Some states that allow rejection require that it apply to all vehicles. If a commercial vehicle has the potential for any personal use, UM / UIM coverage should be purchased. If coverage is rejected, a written policy regarding the personal use of vehicles should be issued that restricts occupancy and use of all vehicles to only employees for business purposes. Smaller entities that are less equipped to absorb the costs of an accident are particularly encouraged to add this coverage.

Set Smart Limits
In a 2015 report, the IRC identified an increase in the severity (the average cost per paid claim) of bodily injury claims. From 2005 to 2013, the average cost went from $11,738 to $15,506 per paid claim (that’s a 32.1% jump).² This increase is most likely due to the rising cost of medical care (which only seems to be trending upward). It is important to carefully consider limits when adding UM / UIM coverage. Purchasing minimum limits may seem like a cost-saving strategy, but if both the at-fault driver and the UM / UIM policy holder only have the minimum limits, there is a chance there won’t be sufficient coverage. The purpose of UM / UIM is to pay for bodily injury costs in the event a negligent driver has insufficient or no coverage, and going with the lowest available limits might defeat the purpose of this insurance. SilverStone Group recommends that UM / UIM coverage limits are equal to a policyholder’s liability limit. If a personal auto liability limit is $100,000 / $300,000 / $50,000, we’d suggest purchasing UM / UIM coverage with limits of $100,000 / $300,000. For commercial vehicles, if the auto liability limit is $1 million, we’d recommend purchasing $1 million in coverage for UM / UIM. An additional limit of coverage may be available under a personal umbrella. Although coverage is generally excluded under most commercial umbrella and excess liability policies, a limited number of states require that these additional limits be offered. It is important to carefully consider limits, knowing that putting a few extra dollars toward the premium could help prevent a sizeable out-of-pocket expense.

Before Turning That Key…
It’s time to think about who you share the road with and what could happen if an uninsured or underinsured driver caused an accident with you, a family member or a driver for your business. While you can’t control the actions of others, you can control how much protection you have with a thoughtful insurance plan. Whatever your destination might be, the insurance experts at SilverStone Group want to help you get there with the confidence of knowing you are protected. For more information about UM / UIM coverage, we encourage you to contact our experienced team.

This article originally appeared in the 2017 | ISSUE TWO of the SilverLink magazine, under the title “An Accident Waiting to Happen | Uninsured / Underinsured Motorist Coverage.” To receive a complimentary subscription to the SilverLink magazine, sign up here.

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