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How Does Underinsured Motorist Insurance Coverage Work?

Rear end car crash with major damage to goth cars

What is Underinsured Motorist Insurance?

California only requires the other driver to have $ 15,000 in coverage (per person) and if your car accident injuries require more than to provide fair compensation your underinsured motorist insurance will provide coverage.  Underinsured motorist insurance is an optional coverage (in most states) that steps in when you’re involved in an accident caused by a driver whose liability insurance isn’t sufficient to pay for your injuries or property damage. It’s different from uninsured motorist coverage, which applies when the at-fault driver has no insurance at all. UIM kicks in when the other driver has insurance, but their policy limits are too low to cover the full extent of your losses.

Will My Rates Go Up if I Use My Underinsured Motorist Coverage?

You will not see a rate increase if you use your underinsured motorist coverage because you were not at fault in the accident.

What if My Coverage is the Same as the Other Driver?

The amounts do not add together.  If you have $100,000 and the other driver has $100,000 the total you can collect is not $ 100,000 Plus $ 100,000 but just simply the highest of the two numbers which in this case is $100,000.

Step by Step How Underinsured Motorist Coverage Works

  1. An Accident Occurs: You’re hit by another driver, and they’re found to be at fault. You suffer injuries, vehicle damage, or both.
  2. The At-Fault Driver’s Insurance Pays Out: Their liability insurance covers your damages—but only up to their policy’s limit. If their limit is $30,000 and your damages are $70,000, you’re left with a $40,000 shortfall.
  3. You File a UIM Claim: If you have underinsured motorist coverage, you file a claim with your own insurance company to cover the difference. Your UIM policy will specify a maximum limit—say, $50,000 per person or $100,000 per accident.
  4. Your Insurance Steps In: Depending on your UIM coverage limit, your insurer pays the remaining amount (or a portion of it). In the example above, if your UIM limit is $50,000, your insurer could cover the $40,000 gap, leaving you fully compensated (assuming no deductibles or exclusions apply).
  5. Limits and Conditions Apply: UIM only pays out after the at-fault driver’s insurance is exhausted, and it won’t exceed your own policy’s limits. Some states also require you to carry UIM if you have uninsured motorist coverage, while others leave it optional.

Types of Underinsured Motorist Coverage

UIM coverage typically comes in two forms:

  • Underinsured Motorist Bodily Injury (UIMBI): Covers medical expenses, lost wages, pain and suffering, and other injury-related costs for you and your passengers.
  • Underinsured Motorist Property Damage (UIMPD): Covers repairs or replacement of your vehicle and other property damaged in the accident. (Note: This isn’t available in all states, as some rely on collision coverage instead.)

The Insurance Company Owes You "Fair Play"

Underinsured motorist coverage is something you paid for and your insurance company sold it to you. Under California law this gives them a legal obligation to treat you in a fair manner.  In practical terms this means that the insurance company has to work with you to arrange for fair and just compensation and not in an adversarial way. 

This requirement means that an insurer has a duty to disclose the existence and amount of any underinsured motorist coverage to its insured within a reasonable time after an accident  Ramirez v. USAA Casualty Ins. Co., 234 Cal.App.3d 391 (1991)) This duty is part of the broader obligation to inform the insured of their rights and obligations under the policy to prevent loss of benefits or forfeiture of rights.

Why You Need UIM Coverage

You might be wondering, “Why should I pay for extra coverage when I’m not the one at fault?” The answer lies in the reality of driving: not everyone on the road is adequately insured. According to the Insurance Research Council, about 1 in 8 drivers in the U.S. is uninsured, and many others carry only the minimum liability coverage required by their state—often as low as $15,000 or $25,000. If you’re in a serious accident, those amounts can disappear quickly, leaving you vulnerable.

UIM acts as a safety net, protecting you from:

  • High medical bills that exceed the at-fault driver’s limits.
  • Costly vehicle repairs or replacement.
  • The hassle and uncertainty of suing an at-fault driver who may not have assets to cover your losses.

A Real-World Example

Let’s say you live in a state where the minimum liability coverage is $25,000 per person for bodily injury. You’re rear-ended by a driver who carries only that minimum. Your injuries require surgery, physical therapy, and time off work, totaling $80,000 in damages. The at-fault driver’s insurance pays $25,000, leaving you with $55,000 to cover. If you have UIM coverage with a $100,000 limit, your insurer could pay the remaining $55,000, sparing you from financial ruin.

Things to Keep in Mind

  • It’s Not Automatic: UIM isn’t included in every policy by default. Check with your insurer to see if you have it or need to add it.
  • Stacking Policies: In some states, you can “stack” UIM coverage if you insure multiple vehicles, increasing your total protection.
  • Cost: Adding UIM is usually affordable—often just a few dollars a month—making it a smart investment for peace of mind.
  • State Laws Vary: Some states mandate offering UIM, while others don’t. Research your state’s requirements to understand your options.

If there is inadequate insurance coverage your recovery options will be limited.  Sometimes a low auto policy will not be the end of the financial investigation.  Homeowners sometimes have umbrella policies which provide additional coverage and within reason a person's individual assets can be used to satisfy a judgment.