Do you need uninsured and underinsured motorist coverage?

Chris Kissell

It can happen in a flash: You're cruising along, enjoying a sunny day, when an out-of-control motorist slams into your car, totaling your vehicle and severely injuring you and a passenger.

Chances are the cost to you will be great. The car needs to be replaced, and you and your passenger may be out of work indefinitely. A long road to recovery could cause months, or years, of pain and anguish.

But what if the driver who hit you has no car insurance, or carries just a minimal amount of coverage that does not come close to paying your bills? Who will compensate you?

The answer may be "no one" -- unless you have purchased uninsured motorist (UM) and underinsured motorist (UIM) coverage.

"Everyone should buy uninsured/underinsured motorist coverage," says Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute.

How UM and UIM protect you

With both UM and UIM coverage, your insurance company steps in and pays your bills when the driver who hit you cannot. The two types of insurance offer similar – but slightly different – types of protection.

Uninsured motorist coverage. Nearly 14 percent of motorists in the United States drive without car insurance, according to the Insurance Research Council. They do so even though this violates the law in most states.

"Uninsured drivers are breaking that law every time they turn the ignition key," Worters says.

If one of these drivers hits you, it may be difficult to recover damages unless you have UM insurance.

Uninsured motorist coverage kicks in and covers such claims, plus any lost wages you suffer while recovering from injuries. Uninsured motorist coverage also covers the claim when a hit-and-run driver smashes your car. So, if you suffer $450,000 in damages and your UM policy is for $500,000, those damages will be covered.

Underinsured motorist coverage. Most drivers follow the law by buying car insurance. However, millions of them still lack adequate liability coverage. Almost every state requires drivers to buy at least a specified minimum level of liability insurance, which pays for the damages you inflict on others. But these state-mandated minimums may not be enough to cover the cost of damages after a serious crash.

If the at-fault driver does not have adequate insurance to pay your costs, underinsured motorist coverage covers the gap. Like uninsured coverage, underinsured coverage also pays your lost wages.

In many states, both types of coverage are optional. But some states require drivers to purchase one or both, according to the Insurance Information Institute.

States that require both uninsured and underinsured motorist coverage are:

  • Maine.
  • Maryland.
  • Massachusetts.
  • Minnesota.
  • Nebraska.
  • New Jersey.
  • North Carolina.
  • North Dakota.
  • Oregon.
  • South Dakota.
  • Vermont.
  • Virginia.
  • Wisconsin.

Places that require uninsured motorist coverage only are:

  • District of Columbia.
  • Illinois.
  • Kansas.
  • Missouri.
  • New Hampshire.
  • New York.
  • South Carolina.
  • West Virginia.

Even if your state makes coverage optional, it is wise to purchase UM/UIM insurance, Worters says.

"The mistake many people make is thinking that 'optional' means 'unnecessary,'" she says. "That is a costly mistake, considering the high number of uninsured and underinsured drivers on the road."

Cost of coverage

The cost of UM/UIM varies from state to state and generally depends on the number of uninsured drivers in a state, Worters says. UM/UIM generally can add $50 to more than $200 to an annual premium, depending on the amount of coverage you choose, she says.

The added cost offers "significant benefits that may be well worth an additional premium," she says.  

Randy Termeer, vice president of product management for car insurance company The Hartford, agrees: "It is a very valuable coverage, so it's a small price to pay."

Will health insurance pick up the tab?

Some drivers skip UM/UIM coverage because they think health insurance will pick up the tab for medical costs. But health insurance does not cover all of the damages associated with an accident, Worters says.  

"Health insurance will not pay for lost wages, or compensate an injured driver or passenger for pain and suffering as a result of injuries in a car crash," she says. However, UM/UIM will cover these expenses.

Termeersays the decision about whether to buy UM/UIM boils down to "a case-by-case scenario." You should sit down with an agent or another insurance expert who can focus on your circumstances, he says. These experts might ask questions such as what assets do they have to protect, or how much financial loss the person can handle, Termeer says.

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