What in the world is Uninsured/Underinsured Motorist Coverage
Uninsured motorist coverage is something I rarely get asked about, but when I do it’s the same two questions: What is it and why do I need it? Although it’s not required in Arkansas and Tennessee, it should be a serious coverage consideration for anyone buying car insurance.
Uninsured/underinsured motorist coverage generally costs a few extra dollars a month, but the coverage it gives you can be life saver depending on your own set of circumstances. First of all, if you don’t have health insurance, life insurance and at a minimum a short term disability policy-YOU NEED THESE COVERAGES. If this is you, please call your agent and see if you have it.e
Let’s dig a little deeper. First off what do these coverages provide in laymen’s terms. First up Uninsured Motorist. Uninsured Motorist is an additional coverage you can add to your auto policy that will pay you or your lien holder if you are in an accident CAUSED BY ANOTHER DRIVER WHO DOES NOT HAVE INSURANCE. There are generally only two types of Uninsured Motorist coverage, uninsured bodily injury and uninsured property damage. These two coverages do exactly as described, uninsured bodily injury pays for your medical bills and uninsured property damage pays to fix your car or truck. Next up is Underinsured Motorist. Underinsured Motorist is also an additional coverage you can purchase that will pay you or your lien holder BUT ONLY IF THE DRIVER WHO CAUSED YOUR ACCIDENT DOES NOT HAVE HIGH ENOUGH LIMITS ON THEIR AUTO POLICY.
Now for the Numbers
The latest information provided by the United States Bureau of Transportation tells us that about 16% of drivers in Arkansas and 20% of drivers in Tennessee have no auto insurance at all. Furthermore an undetermined but obviously greater amount of drivers are deemed underinsured. Both Arkansas and Tennessee require all drivers to carry liability limits of $25,000 for bodily injury. However, Tennessee only requires their motorist to carry a limit of $15,000 for property damage where Arkansas requires a higher limit for property damage of $25,000.
Let’s assume that you drive a car or truck currently worth more than $25,000. I think it’s safe to say that roughly 1 out of every 3 cars you pass on the road do not have enough insurance to pay for your car or your medical bills if they were to cause your accident. So what if I were to tell you that there was a 33% chance that you were going to have a flat if you didn’t stop and put air in your tire? Would you be the type of person who would take the time to put air in your tire to prevent you from having a flat? Remember there are only 9 players in the Major League Baseball Hall of Fame with batting averages higher than .333, which means that your chances of being hit by a driver without enough insurance is significantly greater than a major leaguer getting inducted into the hall of fame. There are literally scores of baseball players in the Hall of Fame who did not record a hit 1 out of every 3 at bats. Change your mind? Well I hope so if you don’t have health insurance, life insurance and short term disability insurance.
What if I have health insurance, life insurance and short term disability? Do I still need it?
Right off the bat 3rd grade math tells us that Driver B, who was later found to be drunk at the time of the accident, doesn’t have enough money to cover Driver A’s bills or his passengers.
In most cases my answer is yes, but let me explain before you make your own decision. Let’s use a real world example I encountered years ago. One evening driver A was rear ended by driver B. The accident totaled A’s car and sent him and his passenger to the hospital. Driver A carried comp and collision coverage on his auto. His limits were $100,000 property damage and $100,000 bodily injury with that limit split between passengers. Driver B carried the Arkansas bare minimum of coverage of $25,000 for bodily injury and $25,000 property damage. Driver A’s car was valued at $39,000 by driver B’s insurance companies adjuster. Driver A incurred roughly $50,000 in medical bills and his passenger had roughly $20,000 in medical bills.
Ex 1: Driver A has health insurance through his job. That policy has a $1,000 deductible with an annual out of pocket max of $3,000. He has $1,000,000 life insurance policy and a short term disability policy with a 90 day defined benefit that will pay him 65% of his gross pay every week. His disability payments would not be taxed. He has a $1,000 deductible on his auto policy. So in this example a major car crash would cost him $4,000 total for his deductibles and out of pocket max. $3,000 for medical and $1,000 for his car. If he had to miss work for 2 months, his disability policy would be covering 95% of his take home pay because those payments are not taxed. So in this scenario Driver A would get paid $25,000 for his bodily injury from Driver B’s insurance company. He would get paid $25,000 for the damages to his truck which would then trigger his $1,000 deductible to pay the remaining damages to his truck which would now be $14,000. So with all of the above considered Driver A would be out $0 if this wreck happened as described.
Ex 2. Driver A has been purchasing uninsured and underinsured motorist coverage at an averaged cost of $72 a year for the last 20 years. All of the events discussed above are the same. Driver A has paid a total of $1,440 in uninsured/underinsured motorist premium. Under this scenario driver A would technically only be out the $1,440 he paid for the coverage because his uninsured and underinsured coverage would pick up the difference that driver B’s coverage did not pay for. That would leave driver A with $25,000 to pay his health insurance out of pocket max of $3,000. Add in the $1,440 he paid for the extra coverage and that would leave him with $20,560.
Ex 3. Driver A has no uninsured and underinsured coverage. Driver B had let his coverage lapse at the time of the accident. Driver A is out $4,000. $3,000 for the health insurance and $1,000 for the deductible on his auto policy.
What to do?
As always, pick a good insurance agent and get your policies reviewed every year. Happy New Years from my family to yours and remember if your premiums aren’t free you are probably paying to much.
Purchase the coverage, unless and only unless you can afford to set the $4,000 in deductibles and out of pocket max on fire. As you can see from the above examples, if you get hit with a life tax like being involved in an accident that is not your fault and you are not properly covered, it makes no sense to not purchase the uninsured and underinsured motorist coverage for less than $7 a month. I will add one caveat to the scenario above, your health insurance company may fight you for the bodily injury coverage money if you gave them the right to subrogate. I’ll discuss what that means in a later post.
Your Friend and Neighbor,