As fiduciaries, we often see the common mistake of auto policies with liability coverages that are too low. One such problem with low liability coverage pertains to uninsured/underinsured motorist (UIM) coverage, which is insurance that protects you if you are injured by another driver who has no liability coverage or limited liability coverage. To obtain reasonable UIM coverage, a driver has to increase his or her own bodily injury liability coverage, because UIM coverage cannot exceed the amount of coverage that a driver carries for accidents that they may cause.
Why should you care about this? According to the Insurance Research Council, approximately 12% of Maryland drivers are uninsured. Not underinsured, but uninsured. They have no coverage at all. You can imagine how high that percentage is for drivers with the state minimum coverage, that is, $30,000 in Maryland. It is estimated that 80% of all drivers have less than $100,000 of liability coverage.
Suppose you have liability coverage of $250,000/$500,000/$100,000. This means that you have liability coverage of $250,000 per person and $500,000 per accident. If one person was harmed in an accident that you caused, then he or she could collect $250,000 from your insurance company. If three people were harmed, then they could collectively receive a total $500,000, with no more than $250,000 to any one of the three persons, from your insurance company. The $100,000 covers property damage caused by you and is in addition to the liability coverage.
This liability coverage means that you also could obtain the same monetary amounts in UIM coverage. For example, suppose you are driving by yourself, and another driver without insurance causes an accident and harms you. You could collect up to $250,000 from your own policy. If the person who harmed you was covered by the state minimum, which is $30,000/$60,000/$15,000, you could still only collect $250,000 total, which would be $220,000 from your own policy.
Effective July 1, 2018, the State of Maryland began allowing drivers to purchase enhanced underinsured motorist (EUIM) coverage. How would the previously cited example change under this new EUIM coverage? Assuming the same situation in the previous paragraph, EUIM would allow an injured driver to collect a total of up to $280,000—$30,000 from the person at-fault and $250,000 from his or her own policy.
What if you are driving with two family members in your car when another driver causes an accident involving your vehicle? In this example, if you had EUIM coverage, you and your two family members would split $60,000 from the at-fault driver but then would collect an additional $500,000 from your own insurance policy, for a total of up to $560,000 (compared with receiving a maximum of $500,000 under traditional UIM coverage).
Generally speaking, the average premium increase is nominal for this enhanced UIM coverage. Uninsured and underinsured motorist risks are significant and likely worth the extra premium cost to cover the potential risk properly. For our clients who are Maryland residents, we suggest that they contact their auto insurance agent and obtain the cost quote and the necessary forms to implement this recently approved EUIM coverage. It is important to note that a driver must opt-in to this EUIM coverage. Always be sure to recognize that an insurance agent has his or her own economic incentives, which may not align with your best interests. While most current policies will not fully cover underinsured motorist risk some may, we encourage all of our clients to contact their Financial Consulate advisor if they desire to discuss such specifics in more detail.