You may, or may not, have noticed that you are paying for something on your automobile insurance policy called UIM coverage. UIM benefits are “underinsured motorist” benefits and are on your policy solely to benefit you and other named insureds on your policy. This is as opposed to Liability Coverage which benefits others if you get into an accident and the accident is your fault.
In New Jersey, UIM benefits are bundled together with UM (uninsured motorist) benefits. It may read as Uninsured/Underinsured Motorist Bodily Injury on your policy. You can elect to have anywhere between $15,000 and $500,000 in coverage. The amount of UIM benefits you choose cannot exceed the Liability coverage you have selected. In other words, you cannot choose to protect yourself more than you are protecting others if you are in an accident and it is your fault.
When does UIM coverage come into play?
- You are involved in a car accident AND the accident is not your fault
- You are injured as a result of the accident
- The person who caused the accident has LESS liability coverage than you have UIM coverage; and
- Your injuries are worth more, monetarily, than the liable party has available on his/her automobile insurance policy
How does UIM coverage work? Let’s say that Sally was involved in a collision with John and the accident is John’s fault. Sally has $50,000 in UIM benefits. John has $25,000 in Liability to others coverage. Sally’s neck and back injuries far exceed John’s policy limits of $25,000. This means that John is underinsured, with respect to Sally’s policy.
John’s insurance company offers Sally the $25,000 in order to settle her claims. Sally gets permission from her own insurance company to accept John’s policy limits. Once Sally can get John’s policy limits of $25,000, she can turn to her own policy, via her UIM benefits, to get compensation for up to $50,000. Sally’s insurance company will get a credit for the $25,000 she has already received, leaving Sally with $25,000 available in UIM coverage.
Now, had Sally only chosen $25,000 in UIM benefits or less, her recovery would not exceed John’s $25,000 policy limits. In that case, John would not be considered “underinsured” and Sally’s own benefits would not kick in. For serious injuries, $25,000 is not fair compensation, however, Sally would be limited to that amount if John’s insurance company offered to settle her claim for his policy limits.
Therefore, it is important to keep two things in mind when selecting UIM coverage.
Make sure your UM/UIM coverage matches (and is not less than) your Liability coverage; and (2) remember that your UIM coverage only kicks in if you have MORE coverage than the person who caused the collision. There are many drivers on the road with very low policies ($15,000 is the minimum in New Jersey) and it is up to you to protect yourself and your family.