North Carolina Adjuster Practice Exam

Under what conditions does Underinsured Motor Vehicle coverage begin to pay?

1. Once all personal assets are exhausted

2. After all liability coverages have been exhausted

3. If the driver is found at fault

4. As soon as the claim is reported

The correct answer is: After all liability coverages have been exhausted

Underinsured Motor Vehicle (UIM) coverage is designed to protect insured individuals when they are involved in an accident with a driver whose liability insurance is insufficient to cover the damages. UIM coverage will begin to pay after all liability coverages have been exhausted, meaning that the claims for damages must first go through the at-fault driver's liability insurance. Once that coverage limit is reached and does not fully compensate the injured party for their damages, the UIM coverage can then step in to provide additional funds up to the limits of the policyholder's UIM coverage. This ensures that the insured is adequately compensated after exhausting the at-fault party's liability coverage. The other options do not accurately capture the conditions under which UIM coverage begins to pay. For instance, the option about exhausting personal assets focuses on the individual’s financial situation rather than the insurance coverage in place, while the option stating that UIM pays if the driver is found at fault overlooks that UIM coverage specifically kicks in when the at-fault driver's liability coverage is inadequate. The assertion that coverage begins as soon as a claim is reported is misleading because it requires the prior step of exhausting the at-fault driver's liability insurance limits.