How does uninsured motorist coverage work?

Liability auto insurance is a requirement in most states, but approximately 1 in 8 drivers don’t have insurance, according to the Insurance Research Council. If you get into an accident with an uninsured driver, you could be on the hook for paying thousands in medical bills or car repair costs.

Having an auto policy that includes uninsured motorist coverage can help you avoid a bunch of out-of-pocket costs if a driver without insurance crashes into you.

What is uninsured motorist coverage?

Uninsured motorist coverage, or UM coverage, is insurance that protects you, your passengers, and your vehicle if you are the victim in an accident caused by a driver without car insurance.

While about 13% of drivers nationwide are uninsured, the proportion in individual states varies. According to the Insurance Research Council’s most recent study, New Jersey has the lowest percentage of uninsured drivers with an estimated 3%. Mississippi, on the other hand, has the highest percentage of uninsured drivers at just over 29%.

To offset the risk posed by uninsured motorists, several states have laws requiring drivers to maintain some type of uninsured motorist insurance. These states are:

• Connecticut

• Washington, D.C.

• Illinois

• Maine

• Maryland

• Minnesota

• Nebraska

• New Jersey

• New York

• North Carolina

• North Dakota

• Oregon

• South Carolina

• South Dakota

• Vermont

• Virginia

• West Virginia

• Wisconsin

Types of uninsured motorist insurance

There are two types: uninsured motorist bodily injury (UMBI) coverage and uninsured motorist property damage (UMPD) coverage.

Uninsured motorist bodily injury coverage

Uninsured motorist bodily injury coverage helps cover medical expenses, lost wages, pain and suffering, and potentially funeral expenses after you’re in an auto accident with an uninsured motorist.

Typically, if you’re in a car accident, the insurance company of the driver who is at fault would cover the expenses that arise (unless you’re in a no-fault state). If the at-fault driver doesn’t have insurance and can’t cover the expenses on their own, you could be facing thousands of dollars worth of medical bills, lost wages, long-term care, and other expenses.

In some states, uninsured motorist bodily injury coverage can be used by victims of a hit-and-run accident. This type of coverage can even protect pedestrians who are hit by vehicles driven by uninsured motorists.

Although adding uninsured motorist coverage to your policy will increase your premium, it’s usually a fairly nominal amount. You typically won’t have to pay a deductible before this coverage kicks in.

It’s recommended that you choose policy limits for uninsured motorist coverage similar to your liability coverage limits. For example, if your liability limits are set at $25,000 per individual and $50,000 per accident, you should opt for $25,000/$50,000 limits for your UM coverage as well.

Some states will allow what’s known as "stacking" when you have multiple vehicles on your auto insurance policy. Stacking lets you multiply your coverage limits by the number of cars on your policy. For instance, if your limits were 25/50 and you had three cars on your policy, you could stack that coverage so that you could get up to $75,000 per person and $150,000 per accident.

Uninsured motorist property damage coverage

Uninsured motorist property damage coverage helps you pay for damage to your vehicle or other property (such as a fence or house) following an accident caused by an uninsured driver.

It may also be used for other related expenses, such as covering your collision coverage deductible or the cost of a rental car while your vehicle’s being repaired.

By selecting coverage limits that match up with the value of your vehicle, you can avoid taking a financial loss if your vehicle is totaled.

Uninsured motorist property damage coverage isn’t available in every state and may require a deductible.

What is an underinsured driver?

Similar to uninsured motorist coverage, auto coverage known as underinsured motorist (UIM) insurance can be included on your car insurance policy to cover injury or loss stemming from an accident with a driver who doesn’t have enough insurance.

A driver could be considered underinsured if they have less coverage than the minimum state requirements or if they cause an accident resulting in more injuries or damage than is covered by their insurance policy.

Depending on your state, uninsured motorist coverage and underinsured motorist coverage may be bundled together. Like uninsured motorist coverage, underinsured motorist insurance is divided into the same two components.

Underinsured motorists bodily injury coverage

Underinsured motorist bodily injury (UIMBI) coverage pays for medical bills, wage loss, pain and suffering, and funeral expenses following an accident with a driver who is underinsured. It’s similar to UMBI coverage, except in this case, the driver does carry insurance – just not enough to cover all the injury-related expenses.

Consider a scenario in which a driver causes a multi-vehicle pileup, seriously injuring five people. If the driver’s liability insurance pays a maximum of $20,000 per accident, that probably wouldn’t be enough to cover all the doctor bills and medical payments.

Having underinsured motorist bodily injury coverage can help cover your expenses after an at-fault driver’s insurance coverage is exhausted.

Underinsured motorist property damage coverage

Underinsured motorist property damage (UIMPD) coverage pays for damage to vehicles and property after an accident caused by a driver who has insurance but not enough to cover all the damage they caused.

If someone totals your expensive sports car in an accident, for example, their insurance coverage limits may not be enough to replace your vehicle. With underinsured motorist property damage coverage, your insurance can help make up the difference.

Do you need uninsured motorist coverage?

When deciding whether you should have uninsured motorist coverage, consider your state’s requirements, other insurance coverage you have, your risk tolerance, and your financial ability to cover out-of-pocket expenses.

Your state’s requirements and risk factors

As mentioned, several states require drivers to have uninsured motorist coverage when registering a vehicle. A handful of them also require underinsured motorist coverage. If you live and drive in those states, your decision is made up for you – you’ll need to get that additional coverage.

You can also opt into purchasing uninsured and underinsured motorist coverage on your own. Consider your risk tolerance and how comfortable you’d feel covering car repairs or medical bills if an uninsured driver crashed into you.

The prevalence of uninsured drivers in your state is another factor. According to the Insurance Research Council, the 10 states with the highest percentage of insured drivers are:

• Mississippi – 29.4%

• Michigan – 25.5%

• Tennessee – 23.7%

• New Mexico – 21.8%

• Washington – 21.7%

• Florida – 20.4%

• Alabama – 19.5%

• Arkansas – 19.3%

• Washington, D.C. – 19.1%

• California – 16.6%

The 10 states with the lowest percentage of insured drivers are:

• New Jersey – 3.1%

• Massachusetts – 3.5%

• New York – 4.1%

• Maine – 4.9%

• Wyoming – 5.8%

• Pennsylvania – 6.0%

• New Hampshire – 6.1%

• Connecticut – 6.3%

• Utah – 6.5%

• North Carolina and South Dakota (tied) – 7.4%

Read more: These are the minimum car insurance requirements in all 50 U.S. states

What happens if you don’t have uninsured motorist coverage?

If your state doesn’t require you to have uninsured motorist coverage, you might still be able to purchase it from your insurance company. However, you can choose not to.

In the event that you do get into an accident caused by an uninsured driver, you might have to pay for your own medical bills and car repair costs if the responsible driver can’t cover those expenses for you.

If you have health insurance, your medical bills following an accident might be covered, but you may have a copay, co-insurance, or a high deductible to meet first. Even if your auto insurance policy includes personal injury protection (PIP), it may not be enough to cover all the expenses related to your car accident injury.

Having short- or long-term disability coverage can be useful, but it’ll typically only pay a portion of your wages, so you might still experience income loss if you aren’t able to return to work after being in a car accident.

Collision insurance may help pay your car repair bills if an uninsured motorist hits your vehicle, but it may not cover damage to a fence, mailbox, house, or other property.

If you choose not to get uninsured motorist coverage, it can be helpful to regularly set aside money in a high-yield savings account to cover expenses in case you get into an accident with an uninsured driver. This could be your emergency fund or an account specifically for car-accident-related expenses. You’d essentially become your own insurance plan of sorts – hoping for the best but preparing for the worst.