Underinsured Motorist Endorsement Australia 2025: Essential Cover Explained

Australia’s roads are busier than ever, and while compulsory third party (CTP) insurance is standard, many drivers are surprised to learn how exposed they are if hit by an underinsured motorist. In 2025, the rise in insurance premiums and economic pressures have led some to downgrade their cover or skip comprehensive insurance altogether. This is where the underinsured motorist endorsement steps in—an often overlooked but critical policy add-on that can protect you from hefty out-of-pocket expenses after an accident.

What Is an Underinsured Motorist Endorsement?

An underinsured motorist endorsement (sometimes called underinsured driver cover) is an optional addition to your car insurance policy. It covers you if you’re involved in an accident caused by another driver who doesn’t have enough insurance to pay for your losses. While CTP covers injuries, it does not cover vehicle or property damage—and with a rise in drivers taking out only bare-minimum insurance, the risk is real.

• Example: You’re hit by a driver with only CTP. Your car is written off, and you’re facing $30,000 in repair and medical bills. Without underinsured motorist cover, you may have to chase the driver personally for compensation—which can be a long, costly process with no guarantee of success.

Why Is This Cover So Important in 2025?

The insurance landscape in Australia is shifting. Recent 2025 industry data shows that around 15% of private vehicles now have only CTP or third-party property insurance, up from 11% in 2022. Economic factors, including inflation and the rising cost of living, are pushing more motorists to cut back on cover. This means:

• Greater exposure to uninsured or underinsured drivers, especially in metro areas and among younger drivers
• Higher repair costs due to supply chain disruptions and more advanced vehicle technology
• Potential for significant out-of-pocket expenses if the at-fault driver can’t pay your damages

Recent policy changes have made it easier for insurers to offer flexible endorsements. Some major insurers now provide underinsured motorist cover as a standard feature on comprehensive policies, while others offer it as an add-on for as little as $20–$50 per year.

How Does Underinsured Motorist Endorsement Work?

If you’re in a not-at-fault accident with an underinsured driver, your insurer will step in to cover the gap between what the other driver’s insurance pays and your total losses, up to the limits of your policy. Typical scenarios where this cover is invaluable include:

• Hit by a driver with third-party-only insurance
• Collisions involving vehicles registered interstate or from overseas
• Accidents with drivers whose insurer goes into liquidation (a rare but rising concern in 2025)

Some policies may also cover personal injury costs not fully paid by CTP, or damages to property inside your vehicle. Check your Product Disclosure Statement (PDS) for exact terms—limits can range from $5,000 to $50,000 depending on the insurer.

Choosing the Right Cover: What to Ask Your Insurer

Not all underinsured motorist endorsements are created equal. As you review your car insurance in 2025, ask your provider:

• Is underinsured motorist cover included or do I need to add it?
• What is the maximum payout under this endorsement?
• Are there exclusions (e.g., if the other driver flees the scene or cannot be identified)?
• Does it cover property damage, medical costs, or both?
• How does the claims process work if the at-fault driver is uninsured or underinsured?

Given the unpredictability of Australia’s roads and the evolving insurance market, this small premium can be a smart hedge against major financial risk. As more drivers feel the pinch and opt for less cover, the likelihood of needing this protection only grows.