Auto Insurance Basics: What You Need to Know

Buying auto insurance can be confusing because there are many types of coverage. Here's a guide to what auto insurance encompasses, and how you can keep your costs down.


Auto liability insurance protects you from liability you might face from the other parties in an accident. There are two areas: Bodily injury, which covers medical and legal bills, and loss of income. If you don't have enough liability coverage, you might be forced to tap your savings to pay off big bills from lawsuits.

The other coverage is property damage. This covers damage to physical property like homes and storefronts, and vehicle repair or replacement costs for any other parties in the accident.

Vehicle Coverage

Damage to your car is covered under this area. Like liability (discussed below), it's split into two areas.

The first is collision, which covers repairs or replacement of your car because of a crash, up to your car's actual cash value -- the car's value after taking into account depreciation and wear and tear.

The second is comprehensive coverage. It's for damages to your car for things other than accidents. This includes storms, vandalism, or striking an animal on the road.

Medical payments coverage: If you're in a covered accident, this covers medical expenses that may result.

Underinsured/Uninsured Motorist Coverage covers you in the event you're in accident with another motorist who has no or very little insurance.

Personal Injury Protection: This helps cover medical expenses, as well as any loss of income while healing from an accident.

Insurance Costs?

The higher your coverage limit, the more you will pay in premium costs.

Lower your coverage limit, you'll play less premium, but you'll pay more out of pocket if you're ever in an accident that's above the limit.

Another way to lower your premiums is upping your deductible. A deductible is the amount you pay if you make a claim for an accident. If you have a higher deductible, you have a lower premium.

You can lower your premium in other ways like safe driving, and avoiding traffic tickets and accidents. If you have children on your policy, their good grades can lower the premium.

Compare Policies

Shop around when looking for car insurance. It's easy with the Internet to get multiple quotes, and you can tweak the coverage and deductible levels to see different premium options.