Imagine a situation where a driver hits you and has insufficient liability coverage. Worse still, the driver leaves before you can get all the necessary details. This is where underinsured motorist coverage comes in. This kind of insurance protects you from irresponsible drivers on Canadian roads.
In Canada, an underinsured driver is defined as one who does not have sufficient insurance to cover other parties’ damages in the event that they’re found at fault for an accident. For example, an underinsured driver may have auto liability insurance but will not have sufficient liability limits to cover all the medical and repair bills that follow an accident. It is obvious that being uninsured is bad, but being underinsured can be even worse.
If you want to understand what it means to be an underinsured driver, this write-up is designed for you.
What Is Underinsurance?
Underinsurance refers to insufficient insurance coverage that leaves a policyholder liable for a percentage of the total expenses in the event of a destructive occurrence. As you might expect, this may result in financial hardship if you haven’t saved for such an emergency.
Underinsured motorist coverage is an insurance policy that helps pay your expenses in the event that you are hit by an underinsured driver. It is an addition to your auto insurance. In case of an accident, the person at fault is expected to compensate those who have suffered damage or injuries. However, there are cases where the at-fault person does not have enough insurance, or their policy limit may be less than the total amount of damages. With underinsured motorist coverage, your own insurer can help cover the deficit.
When you have underinsured motorist coverage, you protect yourself and your family members if they are injured during an accident. However, there is a limit on the relatives and friends who may benefit from the coverage at the time of an accident. This kind of insurance will only cover a friend or non-household relative who, at the time of the accident, was inside, on, entering, or exiting an insured motor vehicle.
What Happens When You’re Underinsured
When you are underinsured, it means that you have paid for an insurance policy that does not fully cover the cost of your potential loss or the financial impact in case of an accident. This means that when you make your claim, your insurer will not cover your total loss. You will be required to cover the remaining expenses caused by the accident out of your own pocket.
How Underinsured Motorist Insurance Works
When an individual is involved in an auto accident through no fault of their own and the other motorist has insufficient insurance to cover the damages, underinsured coverage comes in. Once you file a claim with your provider, it will get in touch with the other driver’s provider for payment. In the event that the other driver did not have enough insurance coverage to pay for your expenses, the underinsured coverage will offset the difference up to the limit of your insurance policy. For instance, suppose your automobile and medical damages amount to $150,000, but the other driver’s insurance coverage is $100,000. You can claim the difference from your insurance provider, up to the limit of your policy coverage.
You are not allowed to request more than the actual costs you incurred as a direct result of the accident. Before settling your claim, your insurer will ask for copies of bills for all medical care received and any automobile repairs undertaken following the accident. If your insurance provider deems that some or all of the costs submitted with your claim are unnecessary or unrelated to the accident, it can deny part or all of the claim. If you disagree with your insurer’s decision, then your case will go to binding arbitration.
Do You Need Uninsured Motorist Coverage?
A 2021 report from the Insurance Research Council indicated that one in eight drivers on Canadian roads do not have car insurance. But what happens if you sustain an injury in a car crash caused by a driver who has no liability car insurance? You will be stuck with hefty out-of-pocket medical and car repair expenses.
Fortunately, this problem can be alleviated by some types of car insurance coverage. Uninsured motorist coverage and underinsured motorist coverage can help you cover medical bills and other expenses should you and your passengers be involved in an accident. The insurance coverage will take care of expenses in an accident caused by:
- A driver who carries no liability car insurance
- A driver without enough liability insurance to cover your medical bills
- A driver whose insurer denies coverage or goes out of business
By having uninsured motorist coverage, you are covered for:
- Medical bills
- Lost wages when you cannot work because of an accident
- Compensation for pain and suffering
- Funeral expenses
- In some provinces and territories, property damage
Conclusion and Recommendations
Typically, underinsured motorist coverage is a fairly inexpensive addition to your overall auto insurance policy costs. However, it can be very beneficial if you get involved in an accident and the driver at fault doesn’t have enough insurance to cover all your costs for the damages from the accident. Unfortunately, on today’s Canadian roads, this is a more frequent occurrence than you might expect. Recent statistics have shown that one in every eight drivers has no insurance. Even those who do have insurance may only do the bare minimum required by their provincial or territorial government. Such basic insurance coverage will not cover all the expenses of many accidents.
Fortunately, many insurance companies in Canada provide a range of underinsured motorist coverage plans. Some will cover bodily injury, others property damage, and still others may cover both. In addition, underinsured motorist coverage is a legal requirement in most provinces, unless the insurer and insured execute a written waiver in a specific format spelled out by law. We highly recommend that, as an automobile owner, you purchase underinsured motorist coverage to protect yourself and your family from unforeseen expenses. It likely won’t be an expensive addition and may be enormously beneficial in the long run.
Frequently Asked Questions (FAQs)
1. What is the difference between uninsured and underinsured?
Uninsured motorists carry less insurance than is required by their province or territory of residence or have insurance with an insurance company that cannot or will not pay the claim. Uninsured motorists include individuals who have not insured their vehicle at all. On the other hand, an underinsured motorist has the legally required level of insurance, but their coverage isn’t enough to cover all the costs of an accident.
Uninsured motorist coverage shields you if you are involved in an auto accident with an at-fault driver who carries no liability insurance. When involved in an accident with an uninsured motorist who is at fault, you will not receive payment from their insurer. Instead, you will be required to file an uninsured motorist claim. Even then, you may still need to hire an attorney to protect your interests and ensure that your insurance company acts in good faith on your behalf. With all these factors, the overall costs from the accident will increase, digging even more deeply into your budget.
Underinsured motorist coverage, on the other hand, comes into play when you are in an accident with an at-fault driver whose liability limits are below what is required to cover damages and the medical expenses of any injured person. The at-fault driver’s coverage will pay for all damages up to their insurance policy limits. At that point, your underinsured motorist coverage may offset the excess amount up to your own selected limit.
One significant difference between uninsured and underinsured motorist claims is that, with underinsured motorist coverage, you make two claims: one against the driver at fault and one against your insurer. With uninsured drivers, you make a single claim with your insurance company through your own uninsured motorist coverage.
2. How much underinsured motorist coverage do I need?
The amount of uninsured and underinsured motorist coverage you need depends on your provincial or territorial government’s requirements. If the government requires that you have a certain amount of underinsured motorist coverage, then you have to account for at least that minimum when you are getting car insurance quotes. Typically, your minimum will be the underinsured motorist coverage amounts that align with your liability coverage amounts.
For instance, if you have liability limits of $80,000 for injury to one person and $200,000 for injuries in one accident, you will be expected to purchase $80,000 and $200,000 in underinsured motorist coverage for those same areas. However, the most common amounts of mandatory uninsured and underinsured motorist coverage are $25,000 per individual and $50,000 per accident.