Clients frequently ask me what uninsured motorist coverage means and if it’s something they need to buy with their car insurance policy. In a perfect world, the easy answer would be no. Why pay for insurance coverage for other people who are already required by law to buy their own policies? Unfortunately, the reality in California is somewhat less idyllic. While it is true that California law requires all drivers to maintain sufficient financial responsibility (practically speaking, car insurance), the unfortunate truth is that far too many drivers are on the road without insurance coverage. In fact, as of 2004 -- the last year for which statistics are reported on the State’s insurance portal, just over 14% of California drivers did not have even the minimum insurance coverage required by law.
Many more drivers carry only the state minimums--currently $15,000 per person, $30,000 per incident, a level sufficient to cover only the most minor of accidents. As a result, California drivers are generally advised to carry Uninsured/Underinsured Motorist coverage riders on their car insurance policies. Here is an overview of what each term means and how such coverage can help to protect you and your passengers.
Uninsured Motorist Coverage
Uninsured motorist coverage (UM) is insurance provided by your own insurance company which will pay you, and your passengers, for injuries caused by another at-fault driver who does not themselves have any insurance coverage for the accident in question. In other words, it’s coverage you buy for other people who might hit you. This type of coverage is necessitated by the fact, as noted above, that so many California drivers don’t carry sufficient insurance of their own.
Frustrating as it may be to pay for insurance which is essentially designed to cover someone else’s actions, the benefits often far outweigh the costs. While the cost of obtaining UM insurance varies depending on the amount of coverage, the company providing the policy, and the vehicles or drivers for which coverage is sought, the costs of an accident often greatly exceed any such premiums; frequently to the tune of several thousand dollars.
For example, according to statistics provided by the California DMV, the average cost of a level 1 accident--the least severe accident type on their scale-- is over $12,000; a number that greatly exceeds the usual cost of retaining UM coverage for several years. In other words, a single accident in which your insurance company pays you out of UM coverage is likely to more than make up for what most people spend on such coverage.
Underinsured Motorist CoverageUnderinsured motorist coverage (UIM) is similar to UM coverage except that it steps in even when the other driver has insurance but where that person’s coverage is insufficient to pay for the extent of the damages they cause you. In other words, it’s insurance you buy to cover people who don’t buy enough insurance of their own.
There is one small catch to UIM coverage. The at-fault party’s available insurance is deducted from the amount your company will pay you out of your UIM policy. For example, let’s say that someone hits you and is found at-fault; causing you $30,000 in damages. Let’s further say that this defendant had state minimum coverage of only $15,000. Finally, let’s say that you have chosen to purchase UIM insurance in the amount of $30,000. After the dust settles, you’ll collect $15,000 from the offending party’s insurance carrier (their policy limit) and an additional $15,000 from your own UIM coverage ($30,000 in UIM coverage - $15,000 from the other party), for a grand total of $30,000 in damage compensation.
As this example demonstrates, a driver who did not buy UIM coverage would find themselves left with $15,000 in unpaid expenses as a result of the same accident. As with UM coverage above, the cost of obtaining UIM coverage is usually much less than the cost of covering the other party’s insurance gap out of your own pocket.
Health Insurance is not the sameMany people counter that they have health insurance that will cover the costs of treatment after an accident and ask if this will reduce the incentive to purchase UM and UIM coverage. The answer is a solid NO. Health insurance is not the same thing as accident insurance. Health insurance is not designed to compensate you for the whole of an accident, it only covers your medical expenses. Health insurance will not pay you for lost wages, will not pay to fix your car, and will not cover your passengers, unless they have their own health insurance coverage. Additionally, health insurance is often not comprehensive. Some medical treatments are not covered at all, others are covered only for a limited period of time, and still others are covered only after expensive co-pays and deductibles are met out of pocket.
Having health insurance will help to smooth the recovery process after a car accident, but it does not come close to replacing proper liability insurance in most situations. Don’t gamble with a patchwork of coverage when UM and UIM coverage are so readily available.