6 myths about uninsured/underinsured motorist coverage

By Posted : 03/23/2012

Uninsured motorist coverageAlthough nearly every state requires car owners to buy auto liability insurance, many of your fellow motorists are driving without coverage.

Nationwide, an estimated one in seven drivers was uninsured in 2009, according to a 2011 report by the Insurance Research Council.

Now imagine what happens when an uninsured driver errs and crashes into your car, sending you to the hospital with serious injuries. That risk is the reason for uninsured motorist coverage (UM).

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What is uninsured motorist coverage?

UM pays the medical bills of you and your passengers if you're the victim in a car accident involving an uninsured driver.

Underinsured motorist (UIM) coverage kicks in when the at-fault driver has liability insurance, but not enough to cover all the costs. In some states, UM also pays when you're the victim of a hit-and-run driver.

UM/UIM can be a financial lifesaver, but it's often misunderstood.

"We get a lot of questions about it," says Carole Walker, executive director of the Rocky Mountain Insurance Information Association. "A lot of times people don't realize until they're hit by an uninsured driver what the coverage is."

Here are 6 common myths about UM/UIM and what you should know:

1. Why buy the coverage? I can always sue the driver

"While an uninsured or underinsured driver is still financially responsible, good luck getting a financial settlement from a driver who chose not to buy car insurance," Walker says.

Most uninsured drivers don't have the money or assets to pay others' medical bills, so suing them won't do much good. That's why UM/UIM coverage is important.

2. UM/UIM will pay for fixing my car

This a common misunderstanding, says Denise Johnson, an agent with ECI Agency Inc. in Piedmont, Okla., and immediate past chairperson of the Independent Insurance Agents of Oklahoma.

UM/UIM covers injuries -- not property damage. In some states, you can buy a separate coverage called uninsured motorist property damage (UMPD) coverage, which pays for fixing your car if you're hit by an uninsured driver. Another option is to carry collision coverage, which would pay for fixing your car, minus the deductible, regardless of who caused the accident.

3. I don't need UM/UIM because I have health insurance

UM/UIM offers some important benefits that health insurance probably does not provide. For one thing, it pays your medical bills up to the limit without deductibles or co-pays. In addition, UM/UIM pays for lost wages if you can't work because of injuries, and for pain and suffering.

4. I can decide whether I want UM/UIM

Twenty states and the District of Columbia require car owners to buy the coverage. Some other states mandate that insurance companies offer the coverage and require drivers to sign a statement declining it.

Other rules vary by state, too. Some states let you "stack" UM/UIM coverage -- which means you can combine the coverage limits on multiple vehicles to recover costs from a single accident with an uninsured driver. Other states prohibit stacking.

Generally, your insurance company won't allow you to buy UM/UIM coverage for amounts higher than your liability limits.

5. UM/UIM is too pricey

Actually, Walker says, it's affordable car insurance. The average cost in Colorado, for instance, is $67 a year per vehicle.

"It's silly not to have it," says Johnson, who serves on a state task force recommending measures to reduce the rate of uninsured drivers in Oklahoma. An estimated 24 percent of drivers were uninsured in Oklahoma in 2009, according to the Insurance Research Council. The state is tied with Tennessee for the third highest rate of uninsured drivers. Mississippi and New Mexico top the list, with 28 percent and 26 percent of drivers, respectively, uninsured.

Walker advises considering UM/UIM coverage even if you live in a no-fault auto insurance state, where your own insurance covers your injuries in most cases regardless of who is at fault. No-fault systems vary widely from state to state, so learn how coverage works where you live and talk to your insurance agent, she says.

6. I can tap into UM/UIM in any accident involving an uninsured driver

The coverage comes into play only when an uninsured or underinsured driver is at fault. In states with comparative negligence laws, the coverage kicks in only for the percentage at which the uninsured or underinsured driver was in the wrong.

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