Underinsured Motorist
Coverage that pays when the at-fault driver's liability limits are insufficient to cover the insured's injuries.
What It Is
Underinsured Motorist (UIM) coverage pays for bodily injury to the insured, employees, or passengers when the at-fault driver has liability insurance but their limits are insufficient to cover the full extent of the injuries. UIM fills the gap between the at-fault driver's liability limits and the insured's actual damages, up to the UIM policy limit.
UIM is calculated differently depending on the state. In some states, UIM is calculated as the difference between the insured's UIM limit and the at-fault driver's liability limit (offset approach). In other states, UIM is available once the at-fault driver's limits are exhausted, regardless of the UIM limit amount (add-on approach). This distinction can result in dramatically different benefit amounts.
Like UM, UIM requirements vary significantly by state. Some states mandate UIM, others require a written rejection, and a few do not require it at all. In many states, UIM and UM can be purchased at different limits, while some states require them to be equal.
Why It Matters for Brokers
With state minimum liability limits as low as $15,000/$30,000 in some states, underinsured motorist situations are extremely common. A single serious accident can easily exceed minimum limits. Brokers should counsel clients that UIM is effectively an employee benefit—it protects their workers when injured by poorly insured drivers. Skipping UIM to save premium is a false economy that exposes employees to significant financial risk.
Real-World Example
A company employee suffers $320,000 in injuries when hit by an at-fault driver carrying only $50,000 in liability coverage. In an offset state, the company's $500,000 UIM coverage pays $450,000 ($500,000 UIM minus $50,000 at-fault limits), covering the remaining $270,000 in damages plus additional buffer. In an add-on state, UIM would pay up to $270,000 (damages minus the $50,000 already collected). Either way, the employee's medical bills are covered instead of resulting in a workers' comp claim or lawsuit against the employer.
Common Mistakes
- 1Not understanding whether the state uses offset or add-on methodology, leading to incorrect benefit calculations and client expectations.
- 2Setting UIM limits lower than UM limits in states where this is permitted but inadvisable, since underinsured situations are more common than uninsured situations.
- 3Failing to re-offer UIM coverage at renewal when limits change or when a state law changes regarding UIM requirements.
How brokerageaudit.com Handles This
brokerageaudit.com's Policy Checker verifies UIM election or rejection forms are on file for every commercial auto policy based on state requirements. The system identifies whether the state uses offset or add-on methodology and displays this in the policy summary so brokers can accurately advise clients on expected benefit levels.