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Know the Law – Uninsured vs. underinsured motorist coverages

There are two very important types of insurance that all Michigan drivers should have, in addition to their standard auto no-fault policy: 1) uninsured motorist coverage and 2) underinsured motorist coverage.

Uninsured and underinsured motorist coverages are not part of the no-fault insurance that Michigan motorists are legally required to have. Rather, they are optional policies that should be offered by your insurance company.

Uninsured and underinsured policies provide an extra layer of coverage in the event you’re in a car accident. They typically cover the driver, any family members and passengers. And the cost for each is relatively minimal.

Uninsured Motorist Coverage

Uninsured motorist coverage basically protects you from bad drivers who are driving illegally with no insurance.

Currently, about 21% of all Michigan drivers are uninsured. This means that, if you’re in an auto accident, there’s a 1 in 5 chance you won’t be able to get full compensation from the at-fault driver for your injuries.

Uninsured motorist benefits would kick in, for example, if you’re in a hit-and-run accident. If you have uninsured motorist coverage and the other driver leaves the accident scene, you’ll then bring a liability claim directly against your own insurance company for compensation. In other words, you “stand in the shoes” of the at-fault driver who fled the scene.

Underinsured Motorist Coverage

Underinsured motorist coverage essentially protects you from bad drivers who have bare-bones, lousy insurance.

Underinsured motorist benefits kick in when the value of your claim exceeds the amount that’s available under the at-fault driver’s insurance policy. This is important because, in Michigan, drivers are only required to carry $20,000 in coverage. And these bare-bones policies are often capped at $40,000 per occurrence. Under a policy with only $20,000 in coverage, the maximum payout from the insurance company would be $40,000 – no matter how many people were injured or the severity of those injuries.

If you have underinsured motorist coverage, you pursue that part of your claim not covered by the at-fault driver’s insurance through your own insurance company. In other words, you “stand in the shoes” of the other driver whose insurance cannot fully compensate you for your injuries.

But be careful: strict rules apply to underinsured motorist claims – and you must follow these rules so you don’t jeopardize your claim. For example, most underinsured motorist policies require that you 1) exhaust the liability limits before bringing a claim and 2) get written consent from the insurance company before settling any claim with the at-fault driver.

Other conditions may also apply to underinsured motorist benefits, so be sure to carefully read – and understand – the policy.

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