I recently read a court’s decision interpreting a step-down provision of an insurance policy and realized that most consumers have no idea what a step-down provision is and how it impacts their family. A step-down provision limits claims under the uninsured and underinsured motorist benefits. The language of a step-down provision usually limits coverage to those who don’t have their own separate policy. It most often comes into play when there are multiple car insurance policies in the same household.

For example, assume that a new driver (let’s call him Eddie) lives with his parents but has a separate policy of his own. Because Eddie is less than 25 years of age, putting him on Mom and Dad’s policy would be extremely expensive. To cut down on the cost of driving, assume that Eddie buys a separate policy with only $25,000 in uninsured and underinsured motorist coverage. Let’s assume that Eddie is in a car crash where the negligent driver let his insurance lapse so there is no liability coverage. In order to recover damages for his economic and non-economic expenses, Eddie has to make a claim under his own policy for uninsured motorist benefits. However, Eddie only has $25,000 in uninsured motorist coverage.

If that isn’t enough, he can tap into Mom and Dad’s policy, assuming they have more coverage. This is allowed UNLESS Mom and Dad have a STEP-DOWN clause on their car insurance policy. Because Eddie is a named insured on a separate policy, Mom and Dad’s policy will step the coverage down to Eddie’s limits.

The moral of the story is always ask questions of your insurance agent when purchasing insurance. Find out if the policy has a step-down clause and question how it will play out in a variety of circumstances. Also, get price quotes on having a separate policy for that new driver; the benefits of having everyone on one policy may outweigh the additional cost.