Prepare yourself with underinsurance

Why you should get underinsuranceAutomobile insurance can often be a confusing maze of policy language and coverage limits. One area of important coverage that many car owners overlook is underinsurance and uninsurance. For a small additional yearly premium (usually less than $200) you can increase the underinsurance and uninsurance coverage of your automobile policy, thereby providing valuable financial protection for you and your family.

Underinsurance coverage is provided by your own automobile insurer. It affords you and your passengers (if they do not have their own underinsurance policy) coverage if you are involved in a serious automobile accident and the other driver is underinsured. The following example illustrates the application and benefit of underinsurance:

Your car is rear-ended by a driver travelling 40 miles per hour while you are stopped at a red light. Liability is not an issue as you were obeying the rules of the road when the other driver negligently struck your vehicle from the rear. You suffer serious injuries and your medical bills alone are $45,000, not to mention lost time from work along with pain and suffering. However, the other driver only had the Massachusetts minimum of $20,000 in compulsory insurance to cover your injuries. The other driver’s insurer offers the policy, meaning that they agree to pay the full amount of their insured’s compulsory insurance to you ($20,000).

Where does the additional money come from to pay the balance of the medical bills, lost time from work and pain and suffering? Up to $8,000 of these damages may be covered by a portion of your automobile insurance known as Personal Injury Protection (“PIP”) benefits (which we will discuss in a later blog post), but what about the rest?

Underinsurance affords you additional coverage under your own automobile policy. If, for example, you have underinsurance coverage, you can make a claim against your own insurer. Your insurer is allowed an “offset” of the $20,000 you already received from the other driver’s insurer, along with up to $8,000 in PIP benefits you do, or could, receive. When $28,000 is subtracted from the $100,000 total underinsurance policy, you could receive up to $72,000 more from your own insurer as a result of the accident. If you and your insurer cannot agree upon the amount that your insurer will pay you in underinsurance coverage, your insurer is required under the Massachusetts Automobile Insurance Policy to arbitrate your claim before a neutral arbitrator (as opposed to litigating your underinsurance claim in court).

If you did not have underinsurance, the most you are likely to recover from any insurer for your accident is $20,000 from the other driver’s insurer along with $8,000 in PIP benefits, leaving unpaid medical bills along with lost wages and uncompensated pain and suffering. For a small additional premium on your yearly automobile insurance (usually $100 or less), you can include underinsurance benefits thereby providing significant additional protection for you and your family.