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Underinsured motorist coverage: difference-in-limits vs add-on states
The same crash pays differently under a limits-to-limits or an excess UIM formula. Worked examples at $50,000, $100,000 and $300,000 limits.
If the other driver carried 25/50 limits and your damages are $90,000, their insurer pays up to $25,000 for your injury, leaving $65,000 unpaid. What your own underinsured motorist (UIM) coverage adds depends on your state's formula. In an "excess" or "add-on" state, UIM pays the $65,000 gap up to your UIM limit. In a "difference-in-limits" (limits-to-limits) state, UIM pays only up to your UIM limit minus what the other driver's insurer paid. With a $100,000 or $300,000 UIM limit both formulas pay the same $65,000; with a $50,000 limit they diverge by $25,000.
This article shows the two formulas side by side with the same facts, explains where they split, and covers the offsets, the trap of carrying the same limits as the other driver, and how to find out which formula your policy uses. All dollar figures below are hypothetical and chosen to show the arithmetic, not typical claims.
Two ways to answer "how much does UIM pay?"
Underinsured motorist coverage exists because the at-fault driver's liability insurance may not be enough. States write the rule in one of two basic ways, and many policies follow the state's lead.
Excess (add-on) approach. Start with your full damages. Subtract what the at-fault driver's insurer paid (and any other benefits your policy says to subtract). If a gap remains, UIM pays it, up to your UIM limit. Your UIM limit is a separate pool that sits on top of the other driver's payment.
Difference-in-limits (limits-to-limits) approach. The other driver is "underinsured" only if their liability limit is lower than your UIM limit. And the most your UIM insurer will pay is your UIM limit minus the amount you received from the at-fault driver. The two policies together can never exceed your UIM limit. You still cannot collect more than your actual damages under either method.
The difference matters in one situation: when your damages exceed what the other driver paid by more than your own UIM limit covers.
The same crash under both formulas
Set up the facts from the reader's question. The at-fault driver has 25/50 bodily injury limits, so their insurer pays $25,000 for your injury (the per-person limit; the $50,000 per-accident limit matters only if several people were hurt). Your total damages are $90,000, so $65,000 is left unpaid. Your UIM limit is one of three amounts, treated here as a per-person limit.
| Your UIM limit | Excess (add-on): UIM pays | Total recovered | Limits-to-limits: UIM pays | Total recovered |
|---|---|---|---|---|
| $50,000 | $50,000 (the gap is $65,000, capped at your limit) | $75,000 | $25,000 ($50,000 minus the $25,000 already paid) | $50,000 |
| $100,000 | $65,000 (the whole gap) | $90,000 | $65,000 (cap would be $75,000, so the gap governs) | $90,000 |
| $300,000 | $65,000 | $90,000 | $65,000 (cap would be $275,000) | $90,000 |
Reading the table: with a $50,000 limit you are $15,000 short of your damages under the excess formula and $40,000 short under limits-to-limits. With $100,000 or more, your limit is high enough that the choice of formula does not change the result.
Where the formulas pull apart
The formulas diverge whenever your own limit is the binding constraint. In that case:
- Under the excess approach, your total recovery is the other driver's payment plus your UIM limit.
- Under limits-to-limits, your total recovery is your UIM limit, full stop.
The gap between the two is exactly the amount the other driver's insurer paid. Change the facts to make this visible: your damages are $200,000, the other driver again pays $25,000, and your UIM limit is $100,000.
| Formula | UIM pays | Total recovered | Unpaid damages |
|---|---|---|---|
| Excess (add-on) | $100,000 (gap of $175,000, capped at your limit) | $125,000 | $75,000 |
| Limits-to-limits | $75,000 ($100,000 minus $25,000) | $100,000 | $100,000 |
Neither result makes you whole, which is the usual lesson: UIM is as large as the limit you chose.
The equal-limits trap
Limits-to-limits has a consequence that surprises people. Many drivers carry the same limits on UIM as on their liability coverage, and in many states UM and UIM limits default to the bodily injury liability limits you buy. Suppose you carry 25/50 liability and 25/50 UIM, and the other driver has 25/50 too.
- Under limits-to-limits, the other driver is not underinsured, because their limit is not lower than yours. UIM pays nothing, even if your damages are $90,000.
- Under the excess approach, UIM pays the gap up to $25,000, so you recover $50,000 in total.
In a limits-to-limits state, UIM helps you only against drivers who carry less than you do. If you want protection against someone with the same limits as you, you need to carry higher UIM limits than the typical driver's liability limits. Our guide to what 25/50/25 means: split liability limits explained explains the split limits notation, and the liability limits decoder shows what each number covers.
Which states use which formula
States set the rule by statute, and some leave room for the policy to choose. The four examples below, each checked against the statute or official guidance in November 2026, show the range. Do not treat any as a rule for another state.
| State | Approach | What the source says |
|---|---|---|
| California | Limits-to-limits | An underinsured motor vehicle is one insured for less than the injured person's UM limits, and the insurer's maximum liability "shall not exceed the insured's underinsured motorist coverage limits, less the amount paid" by liable parties (Insurance Code 11580.2(p)) |
| Florida | Excess | UM coverage "shall cover the difference, if any, between the sum of such benefits and the damages sustained, up to the maximum amount of such coverage"; the statute says the amount "shall not be reduced by a setoff against any coverage, including liability insurance" (Fla. Stat. 627.727(1)) |
| Texas | Excess, with offsets | UIM pays damages "not to exceed the limit specified in the insurance policy, and reduced by the amount recovered or recoverable from the insurer of the underinsured motor vehicle" (Insurance Code 1952.106) |
| New Jersey | Excess, with a first-$500 exclusion | The state consumer guide's example: when damages exceed the other driver's limit, "the difference is covered by your underinsured motorist coverage," excluding the first $500 in damages |
Sources: California Insurance Code 11580.2 on FindLaw (current as of January 1, 2026); Florida Statutes 627.727 (2026); Texas Insurance Code 1952.106; New Jersey Department of Banking and Insurance 2026 auto guide.
Texas and Florida can look similar but the wording differs, and the Texas Supreme Court has applied it in detail. In Brainard v. Trinity Universal Insurance Co., 216 S.W.3d 809 (Tex. 2006), the jury valued the family's damages at $1,010,000. The at-fault company's liability limit was $1,000,000, and the family had also received $5,000 in personal injury protection benefits. The court treated both as offsets against actual damages, which left $5,000 payable under the UIM coverage (the opinion is on the Caselaw Access Project). That is the excess approach working as described: damages minus everything already paid, up to the UIM limit.
For other states, use the checking steps in the section below. The Insurance Research Council reports that 15.4 percent of motorists were uninsured in 2023 (III summary of its 2025 study), which is why states treat UM and UIM as a pair. It does not tell you how any state's UIM formula works.
Reduction clauses and offsets
UIM policies and statutes often subtract other benefits so you are not paid twice. The types vary by state.
- Workers' compensation. California's statute lets UM coverage be reduced by workers' compensation amounts paid or payable. Florida's statute describes UM coverage as "over and above, but shall not duplicate" workers' compensation, personal injury protection, disability benefits and automobile medical expense coverage, and says the coverage shall not benefit a workers' compensation carrier directly or indirectly.
- Medical payments coverage. California allows UM to be reduced by amounts paid under automobile medical payments insurance, and Florida lists "automobile medical expense coverage" among the benefits UM must not duplicate. Our article on MedPay or health insurance: who pays first after a crash explains how MedPay interacts with health insurance.
- Personal injury protection. In Brainard, the PIP payment was subtracted from damages before UIM applied.
- Health insurance. Health plan payments are generally treated differently from the benefits above, but that depends on the policy and your state. The plan may also seek repayment from your recovery.
- Medicare. Federal rules define liability insurance to include underinsured motorist insurance, so Medicare may be owed repayment of conditional payments from a UIM award (42 CFR 411.50).
A worked example with a workers' compensation offset
Say you are driving for work and are hit by a driver with 25/50 limits. Your damages are $90,000. The other insurer pays $25,000, and workers' compensation has paid $18,000 of medical and wage benefits. Your UIM limit is $100,000, in an excess state with Florida-style wording.
- Start with damages: $90,000.
- Subtract the liability payment: $65,000.
- Subtract the workers' compensation benefits: $47,000.
- UIM pays $47,000, which is under your $100,000 limit.
Your total from all sources is $25,000 + $18,000 + $47,000 = $90,000. Under a limits-to-limits statute the first cap would be $75,000 ($100,000 minus $25,000), so the damages-based figure of $47,000 is still the lower number. Workers' compensation insurers may claim repayment from a tort recovery in some states, so ask a lawyer how that interacts with a UIM payment in yours.
Settling for less than the other driver's limits
Some states credit the full limit of the other driver's policy even if you accepted less. Florida's statute says the UIM insurer is entitled to a credit against total damages equal to the underinsured motorist's policy limits "even if the settlement ... is for less than the underinsured motorist's full liability policy limits." So if the other driver has a $25,000 limit and you take $15,000 because a lawyer's fee or a dispute made it attractive, your UIM insurer may still compute as if you got $25,000.
The same Florida subsection also sets a notice process for settlements, described in our article on uninsured motorist claims: consent to settle, arbitration and proof. California goes further and does not apply UIM coverage until the other driver's limits are exhausted by payment of judgments or settlements. For more on offset and consent rules, see underinsured motorist claims: offset vs excess and consent to settle.
How this differs from stacking
Stacking is a separate question: whether the UM/UIM limits on several vehicles or policies can be added together. California's statute, for example, bars stacking, providing that the limit of liability for two or more vehicles or policies is not added together (subdivision (q)). Florida's statute lets insurers offer non-stacked coverage at a reduced rate, with the discount set at no less than 20 percent for those policies. The formula in this article decides how much UIM pays against a given limit; stacking decides how large that limit is. Our guide to stacked vs unstacked uninsured motorist coverage covers it.
How to find out which formula you have
- Read the definition of "underinsured motor vehicle" in your policy. If it says the other vehicle's liability limits are less than your UIM limit, you probably have limits-to-limits. If it says the limits are less than the damages you sustained, you probably have an excess formula.
- Read the limit of liability clause. Look for "reduced by all sums paid by or on behalf of the person responsible." That wording often marks a limits-to-limits or credit formula.
- Read your state's UIM statute. Search your state's statutes for "underinsured motorist." Your state insurance department's consumer guide may also describe it.
- Ask your insurer to run your numbers. Use a hypothetical, not a claim.
Questions to put to the agent or insurer in writing:
- "If the other driver has $25,000 per person and my damages are $90,000, how much would my UIM coverage pay at each limit I could buy?"
- "Is my UIM limit reduced by what the other driver's insurer pays, or does it sit on top?"
- "What benefits does the policy subtract before UIM applies?"
- "Can I buy UIM limits higher than my liability limits?"
Common questions
Is excess or limits-to-limits better for me?
Excess pays at least as much as limits-to-limits on the same facts, so for the insured it is the stronger formula. Premiums reflect the formula, and you may not have a choice because the state or the policy fixes it.
Does my UIM limit apply per person or per accident?
Both. UIM limits are usually written as a per-person amount and a per-accident amount, such as 100/300. The examples here use the per-person figure for one injured person. If several people in your car are hurt, the per-accident limit is shared.
What if the other driver had no insurance at all?
Then the claim is an uninsured motorist claim, which many states pair with UIM in one coverage. The process for proof and consent is described in uninsured motorist claims: consent to settle, arbitration and proof.
Does a higher liability limit on my own policy help me?
Not directly. Your liability coverage protects other people from your mistakes. UIM protects you from theirs. In some states you can set UIM at or below your liability limits but not above them (New Jersey's consumer guide says so), so raising liability limits can also raise the ceiling for UIM.
Where do I check my state's rule?
Use the state car insurance requirements lookup tool for required coverages, then your state insurance department's consumer guide and the statute on UM and UIM. A licensed attorney can say how a specific policy applies to a specific injury.
Key takeaways
- On the same facts, the excess (add-on) formula pays the gap above the other driver's payment up to your UIM limit; limits-to-limits caps the total at your UIM limit.
- The formulas differ only when your own limit is the binding constraint, and then the difference equals what the other driver's insurer paid.
- In a limits-to-limits state, carrying UIM equal to the other driver's liability limit can leave you with no UIM benefit at all.
- Workers' compensation, PIP and MedPay payments are often subtracted, and a settlement for less than the other driver's limit may still be credited at the full limit.
- Find your formula in your policy's definition of "underinsured motor vehicle" and its limit-of-liability clause, then confirm in writing with a worked example.