Originally Posted by Phantompooper

Liability Insurance
This is probably the most important type of car insurance, and it's required by most state auto insurance laws. Liability car insurance protects you against the cost of damage and injury that you cause to another in an automobile accident.

It's actually made up of two different policies, bodily injury liability, and property damage liability. As you might guess, bodily injury insurance protects you from the cost of personal injury to others, and property damage insurance protects you from the cost of damage you cause to any physical property like other vehicles or anything you hit in an accident.

You've probably seen automobile policies described by three numbers (like 50/100/25). These numbers refer to auto liability insurance.

They're usually called the split limits of liability insurance. Under our example auto liability insurance policy, you'd be covered for up to:

•$50,000 worth of bodily injury caused to any one other person
•$100,000 for bodily injuries caused to everyone
•$25,000 worth of property damage.

Your state's car insurance laws will require a certain level auto liability insurance. Each state is different, though some are very similar.

Even though it may be tempting to save a few bucks by going with the minimum liability required in your state, it is always worth investing in a little extra protection.

Medical payments insurance
This policy provides for the immediate treatment of injuries caused by a car accident. You, your family members and other passengers in your vehicle are covered, regardless of who is at fault for the accident.

Depending on the specifics of the policy, medical payments coverage may also compensate for lost wages or services of a person injured in the car accident.

PIP, or personal injury protection, is similar to medical payments coverage, but usually provides broader coverage. Many PIP policies provide compensation for lost wages, funeral expenses, and pain and suffering.

Most states that require personal injury protection are "no fault" states, but Maryland, Delaware, and Oregon also do.

Underinsured and Uninsured Motorist Insurance
Both of these types of insurance protect you against injury caused in an automobile accident where the at-fault driver's liability car insurance coverage is inadequate. Though they're often lumped together, they're really two distinct policies.

Uninsured motorist insurance is needed when the other driver has no liability coverage.

Underinsured motorist coverage pays for the cost of your injuries that exceed the other driver's coverage maximum.

Most states require neither type of coverage, but some require one or the other, and a few even require both. They're more often required in no fault states.

Collision Insurance
Collision insurance coverage pays for damage caused to your vehicle in an automobile accident, when you are "at fault". A standard collision automobile insurance policy will pay for any repairs up to the fair market value of your car.

It is important to remember that this value can be significantly lower than the cost of replacing your vehicle (or your loan balance.) If your car is financed or leased, you will need gap insurance to reimburse you for the difference between what you owe and what the car is worth.

Collision coverage usually also comes with an insurance deductible. It's the amount of money you pay toward repairs before your collision insurance kicks in. The higher the deductible you're willing to pay, the less the collision policy will cost.

Collision insurance coverage is not required by law in any state. However, if you're driving a car purchased from a dealership or financed through a lender, you may be required by the dealership or lender to carry collision insurance. (And just to be sure, you should get gap insurance.)

Comprehensive Automobile Insurance
Comprehensive is very similar to collision insurance, the main difference being that comprehensive covers damage caused to your vehicle caused by any unknown party or "act of God".

Vandalism, flood, hurricane, theft, and fire are all events usually covered by comprehensive automobile insurance. (But make sure to read your comprehensive insurance policy for exact coverage details.)

Like collision automobile insurance, comprehensive coverage will pay up to the fair market value of your car (less your insurance deductible.) And although it's not legally required by any state, you will probably need it if your car is financed.

Tip: Your collision and comprehensive automobile insurance policies are two places where it can be pretty easy to cut costs. If your driving record is good, you can carry a higher collision deductible to reduce costs.

Automobile Insurance Endorsements
Automobile insurance endorsement is just a fancy term for any of those policy extras like towing insurance, auto glass insurance, daily rental insurance, and emergency roadside insurance.

These policies are never required by any state, but many drivers value the security and convenience they provide.

Here's what you get for your money:

• auto towing insurance pays for (you guessed it) towing your car anytime you need it

• auto glass insurance gives you a lower deductible (or no deductible) when it comes to repairing any broken window on your car.

• daily rental insurance covers the cost of a rental car while your car is being repaired because of a covered event. (So you'll usually need both comprehensive and collision insurance to qualify.)

• emergency roadside assistance covers repairs done on the spot. Changing a flat roadside may be covered, but you'll have to pay for any repairs at the garage. This policy is often combined with auto towing coverage, and called roadside emergency towing insurance.

In some states, medical payments coverage and uninsured/ underinsured motorists coverages are voluntary coverages. In others, they're mandatory.

The contents of your insurance policy
Your automobile insurance policy is a binding legal contract.
But don't let that keep you from reading it, because it's actually very important to do so.

Your personal auto policy, or "PAP", will have five distinct parts:

• declarations
• insuring agreement
• definitions
• conditions
• exclusions


In most personal auto policy documents, some of these parts will be combined. But they'll all be there. Here's what each section means to you, the insured:

Declarations
This section will likely be the first thing in your auto insurance policy, and it's almost always its own section. Unlike the rest of your policy, it will have been prepared especially for you.

The declarations lists all relevant information about your persaonal auto policy. This includes:

• the year, make,and model of your car
• its VIN (vehicle identification number)
• the name of the insured (you or you and your spouse)
• the dates the policy is effective
• the policy's coverage types and limits
• the policy's cost (your premium)


Sometimes other information is included (like whether you use the vehicle for business or for pleasure). And if your car is financed, the lender who holds the lien on the vehicle will be listed here as the "loss payee". (If the car is "totalled", they'll need to be reimbursed.)

Insuring Agreement
This section is the centerpiece of the personal auto policy. It outlines exactly what the insurance company promises to provide in return for the payment of your premium.

The type and extent of each coverage you've purchased will be described in detail here. This section will also outline exactly who is covered under each provision. It's a long and complicated section, but it's probably the most important part of your auto insurance policy.


Definitions
Want to guess what this section's all about? Yep. All annoying insurance jargon will be clarified here.

Sometimes this section is simply written into the insuring agreement. But in either case, you can be sure that every relevant term will be narrowly defined, so as to cut down on the possibility of a misunderstanding between the you and the insurance company.

Exclusions
This is an important section, because it lets you know what, when and who won't be covered by your policy. The insurance policy exclusions section is really just a list of all possible circumstances that would free the insurer from the responsibility of paying a claim.

An example: Most auto insurance policies contain an exclusion that exempts the insurer from having to pay in the case of intentionally caused damage or injury. (Like that never happens!) Make sure you understand the exclusions, because you don't want to be caught relying on some kind of coverage that you don't actually have.

Conditions
This will become a very important section should you ever be involved in an accident. It lists your duties and responsibilities as the insured in the event of a claim situation.

This part of an auto insurance policy usually includes guidelines for contacting the insurance company, obtaining a police report, and filing a claim. Information on auto insurance policy cancellation will be outlined here, too.

Car insurance is a trade off. More security means a larger premium, while budgeting too closely can leave you without the protection you want. However, you can design a car insurance plan that will cover your needs without costing you an arm and a leg.

Basic liability coverage
This is the single most important type of auto insurance coverage. Carrying too little auto accident liability can expose you to judgments and legal costs for years to come.

Most states require something like 25/50/10 in liability coverage. That's up to $25,000 coverage for any single person injured by you in an auto accident, and up to $50,000 for everyone injured. Not a lot of money for medical bills, lost wages, and compensation for pain and suffering.

You should probably carry more.

Additional auto insurance coverage (anything you get over the minimum) gets cheaper as you buy more. This means that your premium goes up a little while your protection goes up a lot.

Pay special attention to bodily injury liability. It's easy to imagine the cost of personal injuries (plus pain and suffering and lost wages) totalling a million dollars from a somewhat serious accident.

The standard (the average, not the minimum) auto liability policy is 100/300, where the 300 stands for $300,000 in total bodily injury liability.

But I would recommend that you take out at least $300,000-$500,000 worth of personal injury liability, even if that means less property damage coverage.

Why? Because property damage from an accident won't be nearly as expensive as injuries can be. So the $25,000 worth of property damage liability coverage in our example policy is probably adequate. (Of course, you can be on the safe side with a little more.)

Uninsured Motorist Coverage
Uninsured and underinsured motorist coverage protections are a very important part of your policy. One of the best pieces of auto insurance advice I can give is this:

!!! Make sure you carry these two coverages !!!

How important are they? Around 24% of all drivers have no auto insurance coverage. If you're injured in an accident caused by one of these drivers, you won't be reimbursed without this coverage.

And unlike medical coverage, uninsured and underinsured motorist coverage will compensate you for not only the out-of-pocket expense of your injuries, but for your pain and suffering as well. That's why these two types of insurance are so important.

How much uninsured and underinsured motorist coverage do you need? Consider carrying the same limits as your liability coverage.

After all, it makes sense to protect yourself and your family as much as you protect other drivers on the road.

Protecting yourself also means protecting your assets. Often uninsured/underinsured coverage will also reimburse you for property damage you may incur in an accident.

Medical Payments Coverage
Medical payments coverage, also called personal injury protection, or PIP, covers the cost of injuries to you, your family, and your passengers. Sounds like a good idea, right?
Often it's not.

Medical payments coverage can be useless and costly. Why? First off, if you have good health insurance, you don't need PIP. Your health policy should pay for treatment of injuries from a car accident, and it will probably cover more than a PIP policy would.

Secondly, PIP is limited. It pays for a trip to the hospital caused by an automobile. But it doesn't cover any other trip to the hospital. See the problem? You're better off putting your money toward a good heath policy. That way you'll be covered no matter what sent you to the hospital.

If your state requires PIP, consider going with the bare minimum, and putting the money you save toward a better heath insurance policy.

Save on Collision and Comprehensive
The best way to save money on car insurance is to keep a high deductible on both of these policies.

A low deductible may seem to be worth the comfort of never having to fork over $500 or $1000 for car repairs before your insurance kicks in. But it usually isn't.

Consider that raising your deductible by as little as $250 can buy you a couple hundred thousand dollars more worth of liability coverage. Which will make you feel more secure? Paying even $1000 for repairs beats paying 100 times that for someone else's hospital bills!

And a lot drivers are paying for these types of coverage when they really shouldn't be. If you're driving an older car with a very low resale value, the cost of comprehensive and collision coverages for a couple of years may be costing you more than the car is worth!

For cheaper car insurance, consider dropping these policies altogether, especially if you have a poor driving record that inflates your rates.

These policies are not worthless. If you drive a new car, you need them. But you shouldn't carry them in place of reasonable levels of other types of coverage.

Save on Car Insurance Endorsements
Car insurance endorsements include coverage for towing, on-site labor, and rental car expenses. These are inexpensive car insurance policies, but they're not always necessary.

Weigh their benefits versus cost. You may be able to earn a lower premium by going without them.

Towing and labor insurance is popular but usually not very economical. I recommend going with an auto club like AAA for towing and labor protection instead.

The price is similar, and auto clubs provide a lot of other additional services for their members. Dealing with an auto club will also be a lot less hassle than filing a claim every time you use the service.

Daily rental insurance may be a better deal, especially if you're a driver who really relies on their car. The cost is low and the convenience level high. However, if you have other forms of transportation available (another car, a car pool, public transport) you might want to pass. You'll get cheaper car insurance.

Your lifestyle
I know, you're not going to turn the way you live upside down just to save a few bucks on car insurance. I wouldn't either. But there are some small things you can do to save yourself big money.

Drive less and drive more safely. Insurance companies always offer safe driver incentives, which can mean a big auto insurance discount. Drivers with no points in the last three years qualify for much lower car insurance rates.

There's good reason for this. For every speeding ticket you get within one year, your chances of being at fault in a motor vehicle rise dramatically. (We're talking almost 100% per ticket.) So slow down!

The less you drive the less you pay, too. If you can carpool or use public transit to and from work, your rate will go down. Lower your mileage and you'll lower your premium.

If you have kids who drive, it's going to be harder to qualify for a safe driver insurance plan. But teenage drivers who are good students, or who drive older model cars, may earn you an auto insurance discount. And college kids who attend school more than 100 miles away from home (without a car) might too.

One factor that will definetely influence your premiums is the presence of teen-aged drivers in your home.

Your car
The kind of car you drive can have a big effect on your insurance costs. High profile cars (this means both sporty coupes like ours and popular cars preferred by thieves, like Honda Accords) will earn higher premiums than lower profile sedans and station wagons.

Of course, new and expensive cars mean higher collision and comprehensive premiums. Driving an older model can lower your car insurance premium by quite a bit.

Don't feel like trading in your ride? An easier way to earn a discount auto insurance rate is to install safety devices on your car. Air bags, automatic seatbelts, and anti-lock breaks will all improve your rate on medical and un/under-insured motorist coverage.

Car alarms and locator devices can also reduce the cost of comprehensive coverage. Many insurance providers (in fact, almost all of them) will offer you a discount if you provide proof of having some sort of anti-theft device installed.

Your provider
Shopping around several car insurance companies might be the best way to save on car insurance. Quotes for the same coverage can vary widely from lender to lender, and gathering a few before you make your decision can be a real money saver.

Shopping for the cheapest auto insurance online is great way to get multiple quotes without a lot of hassle or commitment. The major car insurance companies can get you several low quotes with one easy application. And even if you don't decide to go with any of them, you'll have some figures to use comparison shopping.