Purchasing Uninsured and Underinsured motorist (“UM/UDM”) coverage is a critical way to protect loved ones and yourself. It applies when you or a family member are a driver, a passenger in your or another car, when you are next to a car, or on a bicycle, or even walking as a pedestrian and if you or a family member are hurt or killed by another motor vehicle. If the person causing the incident, the defendant, either has no or inadequate liability insurance coverage to compensate for damages including death, then you need UM/UDM coverage through your own automobile carrier.
This coverage has a number of nuances and complications, three of which we will discuss. First, what amounts should you purchase? It is highly advisable that you purchase UM/UDM coverage in at least the same amounts as your liability coverage. Liability coverage applies if you or a family member are at fault (liable) and cause harm or damages to others. At one time insurance agents had to offer UM/UDM coverage in the same amounts as your liability coverage; and if you rejected it or chose lesser amounts, then the rejection or reduction had to be in writing. In other words, the consumer, the client needed to be informed and armed with this knowledge in order to decide what to do. Those days are gone. An agent generally does not need to educate a client in this manner. Consequently, many consumers do not even know what this coverage is much less make an informed decision about how much to buy.
Second, many people believe they have “full coverage” but in actuality do not know the amounts. Full coverage can be akin to wearing shorts and a T-shirt or full body armor. Unfortunately, in rural areas, for example, over 15-20% of drivers do not have any liability insurance and many more do not have more than Ohio’s minimum liability coverage which is now $25/50k. What is the right coverage for you?
To illustrate, let us assume you have purchased 100/300 in liability and 100/300 UM coverage, and you are hurt by an underinsured motorist who only has Ohio’s minimum coverage. If you have $50,000 in owed medical bills (to providers or to your health insurance company which wants it money back-this is called “subrogation”), have a significant, perhaps long term injury, and you evaluate your claim at least at $100k, the most you can obtain from the defendant is $25k. Then you have to make a UDM claim for the $75,000 difference. What is important to understand is you cannot “stack” your UM coverage on top of the defendant’s $100k (per person) to get $125,000.
However, let’s say your claim is worth more $100k. This is often the case for moderate to high income or more wealthy consumers or those who are hurt badly and their medical bills exceed $100k. In this scenario, $100/300 coverage is inadequate. One would have wished they purchased higher amounts, such as $300/500k or higher. As a result, it is critical to speak with your agent about what amounts you need and can afford.
When doing so, this brings us to our third point: we strongly urge purchasing Umbrella coverage for both Liability and UM/UDM coverage. This is another layer of coverage above and beyond underlying coverage. To illustrate, if someone has $300/500k in UM/UDM coverage and is hurt badly or killed by a drunk driver with little to no insurance, one can made a claim for the $300k – this is the per person limit- and then the Umbrella exists to provide an additional $1M in coverage, for a total of $1.3 M available for a single person. An umbrella opens at $1M.
There can be a rub. Many insurance companies offer umbrella coverage for LIABILITY coverage, but some, like State Farm, no longer offer an umbrella for UM/UDM coverage.
In sum, review your policies with your agent and ascertain the answers to this checklist:
a. Do I have adequate liability coverage? If not, do I have personal exposure? Said differently, can someone come after my assets and income because I did not purchase sufficient insurance?
b. Do I have UM/UDM coverage and, if so, how much do I have and should I increase the amounts? Reviewing with your agent your combined family incomes, assets, your budget and other needs and concerns should allow you to engage in excellent decision making. Remember, the UDM limits should be equal to your liability coverage.
c. Do I have Umbrella coverage? Is it for Liability and UM/UDM coverage? You need both. Are the amounts sufficient? Assume over time that you or a family member are severely injured by someone with no car insurance and cannot earn an income, or are disabled or need part or full time care, that your life is no longer as it was. You want the umbrella to compensate you fully or properly for all losses including major future medical care and pain and suffering.