Underinsured Motorist Insurance: You Should Have It

Posted on Feb 04, 2010

Underinsured Motorist Coverage: You Should Have It.


North Carolina law requires that every motor vehicle driven on the public roads have liability insurance coverage in an amount equal to at least $30,000 per person.  This insurance coverage protects persons who are injured by the negligence of the driver of the insured motor vehicle. 


However, with today’s medical costs, $30,000 coverage is inadequate.   If you are injured by the negligence of another driver, chances are the vehicle driven by that negligent driver will have the minimum of $30,000 insurance coverage.  If your injuries are larger than $30,000 where will the money come from to pay for your loss?  You may obtain a judgment against the negligent driver for the full extent of your loss.  However, the insurance company will only pay $30,000 of this loss if the other car is insured by the minimum policy limits.  After the insurance company pays its coverage of $30,000, you will have to look to the negligent driver to personally pay the difference between the amount of the judgment and the amount of the minimum insurance coverage.  In most cases, such an excess verdict will not be collected because the negligent driver will most likely not have any assets over and above his or her exemptions with which to satisfy your judgment.  If this happens, you will have to bear the loss yourself and will not be reimbursed above the insurance limits of $30,000. 


You can protect yourself against this loss by purchasing underinsured motorist coverage.  This coverage will be a provision of your liability insurance policy. 


Underinsured motorist coverage provides that if you are injured by a negligent driver and the extent of your damages are in excess of the negligent driver’s liability insurance (therefore making that driver underinsured) your underinsured motorist coverage will make up the difference and will pay the full extent of your loss over and above the negligent party’s insurance coverage up to the limit of your underinsured coverage.


For example, assume that you have underinsured motorist coverage in the amount of $100,000 and you are injured to the extent of $125,000.  Assume further that the negligent party only has a $30,000 liability insurance policy.  In that case the negligent party’s insurance company will pay its limit of $30,000.  Your underinsured motorist coverage will step in and pay the difference between your $100,000 underinsured motorist coverage and the $30,000 in liability insurance carried by the negligent party.  This $70,000 payment from your underinsured motorist coverage will be paid so that your total benefit will be $100,000, an amount equal to your underinsured motorist coverage.  Your underinsured motorist carrier will get the benefit of the liability insurance carried by the negligent driver and may therefore deduct that insurance from what it has to pay you.  In this case, it would deduct $30,000 to account for the negligent party’s liability insurance coverage and pay you the balance of $70,000.  


Even though your loss is equal to $125,000, you can only collect the sum of $100,000 from the combined payment of the negligent party’s liability coverage and your underinsured motorist coverage.  Even though your loss is $125,000, you can only recover a total of $100,000.  Therefore, unless you can collect the balance from the negligent driver’s personal assets, your losses are not covered.  In this example, if you had underinsured motorist coverage in the amount of $125,000, you would be fully covered. 


Underinsured motorist coverage is relatively inexpensive.  As you can see from the above example, it is important that you have the maximum amount of underinsured motorist coverage possible.