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📋 '''Underinsured motorist coverage (UIM)''' is a component of [[Definition:Auto insurance | auto insurance]] that compensates the [[Definition:Policyholder | policyholder]] when the at-fault driver's [[Definition:Liability insurance | liability coverage]] is insufficient to pay for the full extent of the insured's [[Definition:Bodily injury | bodily injury]] damages — and in some states, [[Definition:Property damage | property damage]] as well. It sits alongside [[Definition:Uninsured motorist coverage (UM) | uninsured motorist coverage]] as part of a broader statutory or contractual framework designed to protect drivers from the financial consequences of accidents caused by inadequately insured third parties. Most U.S. states either mandate or strongly encourage UIM coverage, though the specific rules on limits, stacking, and trigger mechanisms vary widely by jurisdiction.

⚙️ Two principal approaches govern how UIM coverage is triggered. Under the "difference in limits" method — used in the majority of states — the at-fault driver's [[Definition:Bodily injury liability coverage | liability limits]] are subtracted from the insured's UIM limits, and the UIM policy pays the remainder up to that difference. Under the "excess" method, the UIM policy pays damages that exceed the at-fault driver's liability limits, up to the UIM policy's own limit, effectively sitting as an [[Definition:Excess policy | excess layer]]. Stacking rules add another layer of complexity: some states permit the insured to "stack" UIM limits across multiple vehicles on the same policy or across multiple policies, significantly increasing available coverage. [[Definition:Underwriter | Underwriters]] price UIM coverage by analyzing frequency and severity data for underinsured-motorist claims within each state, factoring in the jurisdiction's legal environment, including its stance on [[Definition:Comparative negligence | comparative negligence]] and damage caps.

💡 From a loss perspective, UIM claims are among the most sensitive to litigation dynamics. Because the insured is effectively making a claim against their own carrier, disputes over the value of [[Definition:Bodily injury | bodily injury]] damages often proceed to [[Definition:Arbitration | arbitration]] or trial, and the adversarial posture can be complicated by [[Definition:Bad faith (insurance) | bad faith]] allegations if the insurer is perceived as unreasonably low in its valuation. For [[Definition:Insurance carrier | carriers]] writing [[Definition:Personal auto insurance | personal auto]] or [[Definition:Commercial auto insurance | commercial auto]] lines, UIM exposure requires dedicated [[Definition:Claims reserve | reserving]] practices that account for delayed reporting, stacking potential, and the litigation climate in each state. Agents and [[Definition:Insurance broker | brokers]] bear a responsibility to clearly explain UIM options to clients, as many drivers unknowingly carry minimum limits that leave them exposed to exactly the scenario UIM is designed to address.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Uninsured motorist coverage (UM)]]
* [[Definition:Auto insurance]]
* [[Definition:Bodily injury liability coverage]]
* [[Definition:Stacking (insurance)]]
* [[Definition:Bad faith (insurance)]]
* [[Definition:Personal injury protection (PIP)]]
{{Div col end}}

Definition:Underinsured motorist coverage (UIM) - Revision history

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