Part 1: Uninsured and Underinsured Motorist Coverage
The New York Times recently described the act of Spring cleaning as an “annual rite of purification and renewal.” Of course, in an earlier era when homes were heated by burning wood or coal, Spring cleaning was an outright necessity, not the more customary act it is today. But that didn’t take away from the intensity of the labor required.
In the spirit of annual renewal, we’re introducing our Spring Cleaning Series, which over the next several weeks will highlight various types of insurance, with the ultimate goal of inspiring you to review your insurance coverages with your agent or broker. Periodic reviews of your coverages are important since our needs change over time, but also because insurers tend to raise their rates a little each year, so you could be paying more for your policies than necessary.
The focus of today’s Spring Cleaning is Uninsured and Underinsured Motorist Coverage (UM/UIM for short), which is separate from liability coverage you carry to protect your assets in the event you are at fault in an accident. The reason UM/UIM is important is that we know that not all drivers on the road maintain liability insurance, even when required by law, while others maintain only the required minimum which is generally insufficient. For example, in Wisconsin the current liability insurance minimums are only $25,000 bodily injury liability for one person, $50,000 bodily injury for more than one person and $10,000 for property damage. This is where UM/UIM comes in: to protect you from paying for damages or injuries sustained in an accident you didn’t cause.
There are two types of uninsured motorist coverage:
- Uninsured motorist bodily injury pays for medical bills, lost wages if you can’t work after an accident, pain and suffering, and funeral expenses for you, family members in your household or passengers in your vehicle due to an accident with an at-fault driver who doesn’t have insurance.
- Uninsured motorist property damage pays for damages to your vehicle or property due to an accident with an at-fault driver who doesn’t have insurance.
So how much UM/UIM coverage do you need? It’s common to match UM/UIM coverage with the amount of liability coverage you have. If the purpose of liability insurance is to protect your assets in the event you’re at fault in an accident, then you would generally want the same financial assurance if someone else caused an accident. Ultimately, however, the amount should be based on numerous factors such as the make and model of your vehicle, the percentage of uninsured/underinsured drivers in your state, whether you can afford to be out of work if injured in an accident, and other personal financial considerations that your insurance agent should evaluate.
It is also generally recommended to add an uninsured and underinsured endorsement to your personal umbrella policy to increase the amount of protection above and beyond what your auto policy can provide.
Do you know how much UM/UIM coverage you have and whether it’s sufficient to cover your personal risks? If not, consider adding this item to your Spring cleaning to-do list.
While reviewing your insurance coverages may not be backbreaking work, many would still consider it a chore. Nevertheless, if you haven’t spoken with your agent in the last year or two, consider contacting them before warmer weather starts distracting us with more enticing activities.
The views expressed represent an assessment at a specific point in time, are opinions only and should not be relied upon as investment advice regarding investments, strategies, sectors or markets in general. The above commentary has been obtained from sources we believe are reliable, but we cannot guarantee their accuracy or completeness. Past performance is no guarantee of future results. This is not a complete analysis of every material fact. All expressions of opinion are subject to change without notice.
The information contained in this document does not constitute the rendering of legal, accounting, or other professional advice or opinions on specific facts or matters. Talk to your financial advisor before acting on information in this document.