Although there's no such thing as a standard guideline to proper insurance coverage, understanding how each part of your policy works can help you prevent a financial train wreck the next time you make a claim.

There are six parts to a basic insurance policy: Bodily Injury, Personal Property Liability, Personal Injury Protection, Comprehensive and Uninsured Motorist.

Bodily Injury and Personal Property Liability: These two major components of an automobile insurance policy involve liability coverage. These areas insure the policyholder against injuries caused to another person and to property. All 50 states and the District of Columbia require minimum liability coverage amounts. You can find information about your state by visiting the website of the National Association of Insurance Commissioners. These requirements are typically listed as a series of three numbers that define how much, in thousands of dollars, the policy will cover in the event of an accident.

100/300/50
For example, California requires its drivers to carry minimum liability coverage of 15/30/5. This means that the insurance company will pay up to $15,000 for any one person injured in an accident, not exceeding $30,000 on all people injured and $5,000 for property damage.

However, the Insurance Information Institute warns that state minimums nationwide do not provide sufficient coverage in the event of a serious car accident.

A good suggestion is to carry liability coverage that is no less than 100/300/50. That way, you'll be able to provide $100,000 worth of coverage to one individual, $300,000 worth of injury coverage to all passengers, and $50,000 for damage to property.

People with assets to lose in the event of a lawsuit, such as a house or financial portfolio, should consider a supplemental umbrella liability policy. Umbrella coverage protects you in any kind of liability situation, whether the accident is in your car or in your home. For $150 to $300 a year in premiums, you can shield yourself with $1 million worth of protection.