5.4 Part C: Uninsured/Underinsured Motorists

The Problem Part C Solves

Even with mandatory insurance laws, many at-fault drivers cannot pay. The Insurance Research Council (2023) found about 15% of U.S. drivers are uninsured, and roughly one in three are uninsured or underinsured. Part C — Uninsured Motorists Coverage is first-party protection that steps into the at-fault party's shoes: it pays the insured the BI damages the insured would have collected from a responsible driver who has no or too little insurance.

The critical gate: the other driver must be legally liable. Part C never pays when the insured is the at-fault party.

Uninsured Motorist (UM)

UM pays bodily injury caused by:

• A driver carrying no liability insurance
• A hit-and-run driver (a "phantom" or unidentified vehicle)
• A driver whose insurer is insolvent

Worked example — $100,000 UM:

Hit-and-Run Rules

Many states require physical contact between the phantom vehicle and the insured (or the insured's vehicle) before UM applies; others allow a no-contact claim with independent corroboration from a witness. A prompt police report, usually within 24 hours, is generally required.

Underinsured Motorist (UIM)

UIM applies when the at-fault driver has insurance, but the limit is less than the insured's damages. The two main calculation approaches are heavily tested:

Difference-method example, severe injury:

Notice the difference method caps total recovery at the UIM limit, while the add-on method can exceed it.

UM vs. UIM

Who Is Covered

The same circle as elsewhere: the named insured and resident family members in any auto, plus other persons occupying the covered auto, and anyone legally entitled to recover because of injury to one of those persons.

Limits, Stacking, and Settlement Rules

Most states require insurers to offer UM/UIM at limits equal to the liability limits; the applicant must usually reject or reduce it in writing. Limits commonly mirror the policy's liability limits (100/300 liability → 100/300 UM/UIM).

• Stacking — where allowed, an insured with multiple covered autos can combine the per-vehicle UM limits (two cars at $100,000 each → $200,000 of UM). Many policies and states prohibit stacking with an anti-stacking clause.
• Consent to settle — the insured generally must get the UM/UIM insurer's consent before settling with the at-fault driver, or risk losing the insurer's subrogation rights and the UM/UIM claim.
• Arbitration — many UM/UIM disputes are resolved by binding arbitration rather than litigation.

Part C Exclusions (Highlights)

UM/UIM does not apply when the insured uses a vehicle without reasonable belief of permission, when bodily injury is covered by workers' compensation, or when the insured settles with the at-fault party without the insurer's consent and thereby impairs subrogation.

UMPD and the Collision Overlap

In some states UM also includes Uninsured Motorist Property Damage (UMPD), which pays to repair the insured's vehicle when an uninsured at-fault driver damages it. Where UMPD exists it usually carries a small deductible (often around $200–$250) and is useful for an insured who carries no Collision coverage. An insured who DOES carry Collision may prefer to collect under Part D and let the insurer subrogate, because Collision pays regardless of whether the at-fault driver is ever identified. Watch the wording: UM bodily injury and UMPD are separate elections, and not every state offers the property-damage piece.

Reading a UM/UIM Limit

UM/UIM limits use the same split-limit grammar as Part A. A driver with 100/300 liability who accepts matching UM/UIM has $100,000 per person / $300,000 per accident of uninsured-motorist protection. Because the coverage protects the insured's own family, advisors often argue UM/UIM limits should be set at least as high as the liability limits — the people most likely to ride in the insured's car are the insured's own family, and they are the ones UM/UIM protects.

Worked UIM Add-On Comparison

Consider $80,000 in proven damages, an at-fault driver with a $25,000 limit, and the insured carrying $100,000 UIM. Under the difference method, the most UIM can provide is $100,000 − $25,000 = $75,000, and it pays $55,000 to bring the insured to the $80,000 of damages. Under a true add-on method, the insured could in some states keep the at-fault $25,000 and still draw on the full UIM limit, recovering more than $80,000 only up to actual damages — UM/UIM is not a windfall and is capped at the insured's real loss.

Notice, Cooperation, and Time Limits

Part C claims are subject to the policy's Part E duties: prompt notice, cooperation, submission to medical exams, and proof of claim. Hit-and-run claims generally require a police report within 24 hours and prompt notice to the insurer. Failing to report a phantom-vehicle crash quickly is a common reason UM claims are denied, so the exam rewards candidates who connect Part C triggers to the Part E procedural duties.

Exam anchor: UM = no insurance (and hit-and-run); UIM = some insurance, but not enough.