Why 'Stack' Underinsured Motorist Limits?

How can you best protect yourself and your family from potentially devastating medical bills due to a car accident involving an underinsured or uninsured driver?

One technique is to "stack" your uninsured and underinsured motorist, or UM/UIM, coverage on two or more insured vehicles. Your insurance agent can tell you if this is an option in your state.

Stacking multiplies your uninsured/underinsured motorist coverage limits by the number of vehicles on your policy to determine your actual coverage limit on a claim. For instance, if you have two vehicles with UM/UIM coverage of $50,000/$100,000 each, both cars could be covered at $100,000/$200,000 for a single accident. If you have three cars on the policy, coverage would increase to $150,000/$250,000, and so forth.

But it will cost you extra. "If you live in a stacking state, if it's a $25,000 limit and you have three cars, you're really paying for $75,000 worth of coverage," says Robert Passmore, senior director of personal lines policy for the Property Casualty Insurance Association of America, or PCIAA.

So why stack? Simple: If you are involved in a major collision with an uninsured motorist or are the victim of a hit-and-run, your state-mandated UM/UIM minimums may not be sufficient to cover medical expenses and hospitalization for you and your passengers. In these instances, stacking can be a financial lifesaver.

But that's where the simplicity ends and decades of contentious litigation surrounding stacking begins.

"I would hazard to guess that UM/UIM is probably one of the most popular subjects for litigation about auto insurance," says Passmore.

Here's why. First, stacking was not developed by the car insurance industry -- at least not intentionally. Instead, it sprouted from numerous court cases that found stacked coverage to be a reasonable interpretation of the implied intent of UM/UIM coverage.

"The argument is often made that, since the premiums are charged by how many vehicles you have and there is a charge for each vehicle, then you should 'get what you pay for' -- you should be able to stack those limits on top of each other," Passmore says.

J. Robert Hunter, director of insurance for the Consumer Federation of America, says insurers brought stacking on themselves in their contract approach to UM/UIM. "The insurance companies didn't write their intention right," he says. "Courts have consistently ruled that, if there is any ambiguity, the contract will be interpreted leniently in favor of the consumer. Clearly, they didn't write it right."

Enter state legislatures. Because car insurance is regulated at the state level, state laws greatly impact the insurance options available in your state. Court judgments upholding stacking resulted in a crazy-quilt of legislation across the country. Currently, 28 states allow some form of stacking, according to PCIAA. But even in states that don't, courts continue to uphold stacking claims.

"It's completely different by state. That's a challenging issue for carriers," says Christy Moulton Perry, director of product management for Great Northwest Insurance Co. "If everyone wants stacking, we can price for that. It's when they choose nonstacking but then sue for stacking coverage anyway that we have a problem."

Insurers maintain that stacking case law has forced them to increase insurance rates on UM/UIM coverage in those states that allow it. PCIAA estimates that the average UM/UIM loss cost in those 28 states runs 37.3% higher than in nonstacking states.

Passmore says that states that mandate stacking in effect raise the required UM/UIM minimums, which increases the cost of car insurance beyond the reach of some drivers. That not only raises the number of uninsured and underinsured motorists on the road but also the risk of being hit by one. For this reason, PCIAA and other insurance groups continue to lobby hard against stacking.

But Hunter claims the insurers just want to have their underbaked cake and eat it, too.

"They're trying to rewrite (UM/UIM), but the problem is, they're trying to do it without lowering the rate," he says. "They want to change this language, which basically is taking away coverage, but they're saying there's no rate relief for this because we didn't intend to cover it. But that's not the way the rates work; the rates work off of historical data. And if the historical data had (stacking) in, you should lower (the rate). It's not so easy to unravel the problem."

Bottom line for consumers: Ask your insurance agent to explain the stacking laws in your state and have them walk you through your UM/UIM coverage options. If stacking is an option, be sure to carefully weigh any additional premium to make sure it's the right financial move for you.