A client is involved in an auto accident with a driver who has a liability policy with limits of $25,000 per person / $50,000 per accident. The client sustains $60,000 in bodily injuries. The client's own Personal Auto Policy (PAP) has Underinsured Motorist (UIM) Bodily Injury coverage with limits of $100,000 per person / $300,000 per accident. What is the maximum amount the client's UIM coverage will pay for their injuries?
- A$60,000
- B$35,000
- C$0
- D$25,000
Show answer & explanationAnswer & explanation
Correct answer: B. $35,000
UIM coverage typically pays the difference between the actual damages sustained and the amount paid by the at-fault driver's liability policy, up to the insured's UIM limit. The client's damages are $60,000. The at-fault driver's policy pays its per-person limit of $25,000. The UIM coverage will then pay the difference: $60,000 - $25,000 = $35,000. This amount is within the client's UIM per-person limit of $100,000.
Why the other options are wrong
- A. Incorrect; UIM pays only the amount exceeding the at-fault driver's policy, up to its limit, not the total damages.
- C. Incorrect; UIM coverage is designed for this exact scenario.
- D. Incorrect; this is what the at-fault driver's policy pays, not the UIM payout.
Underinsured Motorist (UIM) Payout
Underinsured Motorist (UIM) Bodily Injury coverage in a PAP pays for the insured's bodily injuries when the at-fault driver has liability insurance, but their limits are insufficient to cover the full extent of the insured's damages.
- Pays when the at-fault driver's policy is exhausted.
- Typically covers the difference between damages and the at-fault driver's payout.
- Subject to the insured's own UIM limits.
Memory trick: UIM is like a financial 'top-up' from your own policy when the other driver's wallet is too thin for your injuries.