When is a vehicle considered underinsured?

A vehicle is considered underinsured when it has insufficient insurance to cover the claim. This situation typically arises when the liability insurance limits of the at-fault party are lower than the damages resulting from an accident. For example, if an accident causes $100,000 in damages but the responsible driver's policy only covers $50,000, the vehicle involved is underinsured because the insurance is inadequate to fully cover the expenses incurred.

In contrast, the other options focus on different circumstances regarding vehicle status and ownership. A vehicle being in a crash does not inherently mean it is underinsured; it could have adequate coverage. Similarly, a vehicle owned by an unlicensed driver may violate legal requirements for insurance but does not directly relate to the concept of underinsurance. Lastly, a vehicle failing to meet basic coverage requirements indicates non-compliance with insurance regulations, which does not specifically define underinsurance. Thus, the definition hinges on the adequacy of coverage in relation to the potential claim cost.