What is underinsurance in auto coverage?

Underinsurance in auto coverage refers to a scenario where the insurance policy provides insufficient coverage to meet potential liabilities or damages in the event of an accident. This means that if an insured person is involved in an accident and the damages exceed their policy limits, they may find themselves financially responsible for the excess amount.

This concept is crucial because it can lead to significant financial repercussions for the policyholder. For instance, if someone causes an accident that results in substantial medical bills and property damage, but their insurance does not adequately cover these costs, they could be forced to pay out of pocket for the difference, potentially facing severe financial hardship.

Understanding the importance of having sufficient coverage is vital for drivers, as it ensures that they are protected against unforeseen circumstances that could lead to larger financial liabilities.