Auto Insurance

You might think it would be hard to be both underinsured and overinsured on the same policy, but it's not. In fact, it's pretty common with auto insurance.

To understand how, you have to know something about this coverage, which consists of three basic components:

• Liability coverage, which pays for the damage you do to other vehicles, property, and people in an accident
• Collision coverage, which pays for damage to your car when you cause an accident
• Comprehensive coverage, which pays for damage or loss that occurs from something other than a crash (such as a thief stealing it or a tree falling on top of it)

Many people, in a misguided attempt to keep their premiums low, opt for the lowest possible liability coverage. Unless you're dead broke and on disability, though, that's almost certainly a mistake. If you're sued after causing an accident, you may wind up having to sell just about everything you own and fork over big chunks of your future income to cover the bill. Instead of opting for the minimum, get at least 100/300/50 coverage, which pays $100,000 to each injured person up to $300,000 per accident, plus $50,000 for property damage. If your net worth is over $300,000, you should buy even more coverage—perhaps equal to one or two times your net worth. (If your net worth is really above average, you may need to get additional coverage kn....