Being underinsured is never a good thing. It is particularly unsound for motorists. The streets and highways are public domain, traffic is not under the control of any motorist, and accidents happen all the time. Accidents are usually unforeseeable and unavoidable. They happen even when the motorist is careful and watchful, and follows every single rule of the roadways. The motorist relinquishes a good amount of control over life and limb when he or she chooses to conduct a vehicle on a public roadway.
Once a motorist enters the roadways, he or she is in danger of being hurt and of hurting another person, is at risk of sustaining damage to his or her vehicle, or of damaging the property of someone else. Even to the most careful adult drivers with the very best intentions, this happens all the time. If all parties to an accident are adequately insured, the relative responsibilities will get sorted out and the necessary compensations paid out, eventually, with no unmanageable personal financial loss to anyone. That's the point of motor vehicle insurance.
If, however, any party is underinsured, the outlook and consequences present very differently. When a motorist is underinsured it means that the limits of that person's liability insurance is inadequate to cover the financial fallout from an accident caused by that person, that is, the auto insurance policy does not allow for enough money to cover the expenses of the amount of damage or injury caused in the accident. That person will then be personally liable for the financial compensation in excess of the limits of his or her liability insurance coverage.
If the person has the financial resources to cover the difference, things may resolve themselves. Otherwise, that motorist could be looking at many months or years of financial challenges. Courts do not take people's actual financial situation into consideration when awarding damages to victims of accidents.
Many states have instituted insurance legislation that requires all motorists to carry third party insurance on their vehicles, and have also set a minimum personal liability limit on this, though this is sometimes not enough to fully compensate for the accident. To address this, some states have also mandated personal injury protection (PIP) coverage so that motorists can protect themselves through their own insurance if the person causing the accident is at fault, or even if they themselves are at fault.
Some states have financial responsibility laws that hold people accountable when they cause an accident. In they cannot show that they have the personal financial wherewithal to pay compensation they suffer legal consequences.
There are steps that the motorist can take who wishes to prevent being underinsured and ensure reasonably adequate personal liability coverage, even with a tight budget. One method might be to look at other coverage that is not used very often such as towing or rental coverage, and divert that portion of the premium to getting a higher limit on the personal liability clause. Insurance agents will be able to advise in each particular situation and provide suitable auto insurance quotes.
Other motorists can seek to shield themselves against the underinsured driver by ensuring that they have PIP coverage. Personal injury protection coverage is mandatory in some states, and is therefore included in the basic auto insurance quotes that agents give. In any case, even if it is not mandated by state law, it usually comes at such a very small additional rate relative to the broader policy and can make such a significant difference in an accident with an underinsured person that it is well worth the additional investment.