Unlike liability insurance, which pays for damages by accidents where you are at fault, UM/UIM coverage protects you (“the insured”) by paying (up to the UM/UIM coverage policy limit) for damages such as medical bills, lost wages, pain and suffering, property damage, and other losses when you are injuried by a person who cannot afford to pay and does not have liability insurance. There is a relatively small distinction between UM and UIM coverage. UM coverage protects the insured party when a driver at fault whom causes an accident does not have insurance, and cannot pay for the injury or property damage. UIM coverage protects the insured party when a driver at fault has insurance, but their policy is not enough to pay for all of the damages.
In a perfect world, everyone would have adequate coverage. However, the reality is, many motorists opt for the cheapest insurance premium available. This means the only minimal coverage for these motorists on the road. In Tennessee, the legislature recently revised section 55-12-102, Tennessee Code, to increase the minimum liability insurance:

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(D) (i) If proof is required after December 31, 2008, proof means:

(a) A written proof of liability insurance coverage provided by a single limit policy with a limit of not less than sixty thousand dollars ($60,000) applicable to one (1) accident;

(b) A split-limit policy with a limit of not less than twenty-five thousand dollars ($25,000) for bodily injury to or death of one (1) person, not less than fifty thousand dollars ($50,000) for bodily injury to or death of two (2) or more persons in any one (1) accident, and not less than fifteen thousand dollars ($15,000) for damage to property in any one (1) accident;

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Even though Tennessee has upped the total liability coverage minimum to $60,000 this past year, this amount of coverage is almost always inadequate for anything but the most minor of accidents. As a practical matter the most liability policies are split limit with ONLY $25,000 in liability limits. This amount would certainly not be enough to cover moderate to severe injuries let alone death. This is where UIM coverage kicks in. For example, let’s say a driver hits your vehicle, and is 100% at fault. The damage costs you $100,000 in combined property and personal injury damages, but the other driver only has the Tennessee required minimum of $25,000 in coverage. UIM coverage would pay you $75,000 or the UM/UIM policy limit, whichever is less.

An even worse scenario than an underinsured motorist is an uninsured motorist. In 2007, 1 in 5 motorists in Tennessee did not have insurance. And unfortunately, that statistic is getting worse every day. Numerous reports, such as the recent Insurance Research Council news report, predict an increase in the number of uninsured motorists with the economic downturn. And naturally those who can’t afford insurance would more than likely not be able to pay for an accident which they are at fault for.

To reiterate an important point from the previous lesson – the UM coverage limit cannot exceed liability coverage. So if you have a $100,000 in liability coverage, you’re only allowed to buy up to $100,000 in UM coverage. You can trust yourself to be a safe, defensive driver, but can you trust others on the road? UM coverage is a very worthy investment, because quite simply it helps protect you.

In summary: without UM/UIM coverage, the insured party may be left with a stack of bills and a judgment against a party who cannot pay. This should be more than enough reason to talk with your insurance agent about increasing your UM/UIM coverage. If you have any questions, please contact me via phone or e-mail and I’ll be happy to help.