What Does It Mean to be Underinsured and How Can You Avoid It?

Being underinsured in healthcare, homeowners, or even auto coverage means that the policyholder has insufficient insurance protection. Their policy limits may not be high enough to cover the full cost of a claim, which may leave them liable for a huge financial loss if a covered event occurs. By increasing your limits or purchasing appropriate insurance endorsements, you can minimize the risk of being underinsured.

What Does It Mean to Be Underinsured in Healthcare?

According to the Commonwealth Fund, you’re probably underinsured if your out-of-pocket medical/treatment expenses are between 5% and 10% of your annual income. You may also have inadequate insurance protection if your health plan deductible is more than 5% of your yearly income.

When your health plan is insufficient, you may need to take a loan to pay your insurance deductibles or medical bills. It can also put your health in danger, for example, if you have to push back needed care for the lack of funds.

Here are tips to minimize the risks of being underinsured for healthcare purposes:

  • Save enough to cover deductibles and co-pays.
  • Choose a plan with a higher upper limit to cover healthcare emergencies.
  • If you’re generally enjoying good health and have regularly sought treatment, you could save money by having a low-premium plan with a higher deductible.
  • Choose a plan with higher coverage if you have a chronic disease or haven’t regularly received medical care.
  • In case of an employer-based health plan, find the most comprehensive coverage you can afford.
  • If you’re going for a short-term health insurance plan, identify any coverage gaps that might leave you without access to essential health services.

Being Underinsured in Auto Liability Coverage

All states require drivers to carry automobile liability insurance, although policy limits vary from state to state. By purchasing a policy with the minimum limit, you can save on your auto insurance costs.

You may be underinsured, however, if the minimum liability coverage amount isn’t enough to pay for all the damage and medical bills resulting from an auto accident you caused. This may force you to pay out of pocket for any third-party claim amount above your coverage limits.

If you’re the at-fault driver, you’ll want to avoid being underinsured in any of the scenarios as stated below:

  • The other motorist suffers severe injuries.
  • The crash injured multiple passengers in the other car.
  • Auto crash injuries caused the victims to miss work and lose wages for an extended duration.
  • The other motorist’s car is destroyed or significantly damaged.
  • Other physical properties (besides the other vehicle) were damaged.

You might minimize your out-of-pocket expenses in any of the above car accident situations by increasing your liability coverage limits.

Protecting Yourself in Case of Underinsured Driver Accidents

When you’re involved in an auto accident that’s not your fault, you expect the other motorist to compensate you for all losses, including medical bills and the repair of your car. However, the at-fault driver may not have enough insurance to cover the full cost of your claim if they chose a liability policy with the most minimum limits possible. Having an underinsured motorist policy on top of your standard auto insurance makes sense in this scenario.

If the at-fault driver is underinsured, meaning that their liability policy limit is below the cost of your claim, your underinsured motorist coverage would kick in. Typically, the optional coverage pays up to the limit of your policy.

If you’re looking for options to fix or avoid being underinsured in healthcare or any other type of insurance policy, consult with the experts at Premier Risk LLC today. We can help you optimize your insurance coverage in Long Island and the surrounding cities in New York.

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