Most states in the U.S. require you to purchase auto insurance before you start driving. In these states, driving without auto insurance is illegal, and if you are in an accident or are stopped by the police without insurance, you will be heavily fined and may even go to jail. Check with your local Department of Motor Vehicles (DMV) about laws specific to your state. Even if you can legally drive without auto insurance, it is probably wise to obtain at least a basic package in order to avoid great costs incurred by an accident.

• What is Auto Insurance?

  Auto insurance protects you from the risks that come with owning and driving an automobile. If you are driving without proper insurance coverage, you are exposing yourself to huge financial expenses. There are 2 basic categories of auto insurance:

  • Liability Coverage pays for the damage you cause to others and their property. This includes medical costs of anyone injured in an accident that is your fault.
  • Physical Damage Coverage pays for the damage of your vehicle when you are the cause of an accident. This also includes the cost of repairs in certain non-collision situations such as fire, theft, and other similar situations.

In states that don't have "no fault" laws, whoever is responsible for causing an accident will be required to pay for the costs of the accident. Either the person at fault or that person's insurance company would make the payments.

• How Much Auto Insurance do I Need?

  An auto insurance agent can best answer this question. However, here are some factors to consider:

  • Liability Coverage
  • Driving record/history of the person that will be covered by the insurance policy
  • Primary use of the car (business or personal use)
  • How far the car will be driven each day. For example, if you drive a lot, you may want to consider getting more insurance coverage because you have a higher chance of having an accident. The same holds true for a person who has a history of being involved in accidents.

  Note: The more insurance coverage you require the higher your insurance cost will be.

• Physical Damage Coverage

  The current market value of your car will determine how much physical damage coverage you will need. There is a direct relationship between these two items. As your car's market value declines so should the amount of physical damage coverage. It will decline until your auto insurance premium costs as much or more than repairing or replacing your car.

• What Products Are Available?

  In addition to liability and physical damage coverage, there are many other types of auto insurance coverage that are available. Your need for this additional coverage will depend on what is required by state law.

  • Uninsured Motorist Coverage
    This is required in some states and is optional in other states. This coverage will pay for property damage and bodily injury costs caused by an uninsured driver.

  • Underinsured Motorist Coverage
    This is similar to uninsured motorist coverage. If it is part of your auto policy, you and your car are protected against drivers who have caused property damage and bodily injury but whose insurance coverage is too low to adequately pay for the damages that you have suffered.

  • Additional Coverage
    This covers certain costs related to auto accidents or routine mechanical failures (example: temporary transportation, towing, and labor costs).

Note: This additional coverage is often offered through credit cards, car manufacturers, and automobile club memberships. Therefore, if you have this type of coverage already, you won't need to include this in your auto insurance policy. There is no need to have double coverage. What's Next?

Now that you know the types of coverage that are available, you may want to consider the following items when selecting the proper insurance coverage:

Deductible
The amount of money you must pay before the insurance companies will pay for damages. Taking higher deductibles will reduce your premiums, but you will have to pay more before the insurance coverage applies.

Note: Make sure you have the right amount of cash or liquid assets to pay the deductible.

Liability Limit
The maximum amount that your insurance company is required to pay for a liability claim. The higher your liability limit is, the higher your premiums will be.

Discounts
You may be elligible for various discounts on auto insurance policies that are available for such things as insuring multiple cars, taking driver training, using an anti-theft system, having a good driving record, and owning a car with anti-lock brakes. Also, some companies offer student discounts. This varies by state as well as by company.

Tips

• Claims
  Try to avoid filing small claims. If you file several small claims, your insurance companies may consider you to be a bad risk and raise your premiums.

• Shopping for a Car
  When shopping for a car, sports cars and luxury cars have higher premium rates. Thus, if you really need to drive a Mercedes or BMW, be prepared to pay substantially higher insurance rates.