AUTO INSURANCE PROTECTS U

Auto insurance protects you, and others, from financial ruin in the event of an auto accident. It also comes to the rescue if your car is vandalized, catches on fire or is stolen.

And beyond protecting you financially, auto insurance is a social responsibility. Those who drive without insurance, and without the ability to pay for damages they cause, put the rest of us at great financial risk.

That's why all states (except New Hampshire and Wisconsin) require drivers to carry liability insurance. And even in New Hampshire and Wisconsin, if you choose not to carry insurance you must show that you have enough assets to pay for damages in the event of an accident. A basic auto insurance policy contains six types of coverage. Depending on where you live, some coverages are required and some are optional. (See Mimimum levels of required auto insurance for details.)

Auto insurance is comprised of:

1. Bodily injury liability
2. Property damage liability
3. Medical payments or Personal Injury Protection (PIP)
4. Collision
5. Comprehensive
6. Uninsured/Underinsured motorists coverage

Liability insurance

Liability lingo

Liability coverage limits (that's for the damage you do to others) are written as three numbers, such as 20/40/10. That translates to $20,000 in bodily injury coverage per person, $40,000 in bodily injury coverage per accident and $10,000 in property-damage coverage per accident.

Liability coverage is essential. States require certain levels of minimum liability insurance because that's the coverage that pays for damage you do to others, including bodily injury and property damage. It also pays for your legal bills if you cause an accident.

Bodily-injury coverage includes medical bills and lost wages; property-damage coverage pays to repair or replace property you destroy, such as other cars or property you run into, such as fences. It can also pay for "pain and suffering" damages if someone sues you after a car accident — but only up to your liability limits.

Remember, your responsibility doesn't end at your liability limits. If you cause $65,000 worth of damage and have an insurance limit of $40,000, you're personally on the hook for the remaining $25,000 and could be sued for it. The Insurance Information Institute (III) recommends you carry $100,000 of bodily injury protection per person and $300,000 per accident.

Collision & comprehensive: Up to you

Neither collision nor comprehensive coverage is required by any state. However, the lender for your car loan may require that you carry these coverages at certain levels.

Collision and comprehensive coverages

If you cause a car accident, the collision portion of your policy pays to repair your own vehicle. Your car is considered "totalled" when the repair costs exceed a certain threshold of the car's value, such as 70 percent. At that point, the insurance company will tow away the car to the salvage yard and offer you the actual cash value of your car. For more, read Total warfare: What to do when your insurer totals your car.

To keep your premium costs down when you buy collision coverage, you can raise your deductible to $1,000 or $2,500, but remember you'll have to pay that amount out of pocket before any coverage kicks in.

Comprehensive coverage pays for damages to your car that aren't due to car accidents: Theft, fire, vandalism, natural disasters and hitting a deer are included. Also, your glass coverage comes under the comprehensive portion of your policy. If your windshield cracks, comprehensive coverage saves the day. As with collision coverage, there is a deductible for any comprehensive coverage claim.

Medical payments, PIP and no-fault

Medical payments (called MedPay) coverage pays for the medical expenses of you and your passengers after an accident. This includes accidents while you're driving your car, while you're driving someone else's car (with their permission), or injuries to you or your family members while you're pedestrians. MedPay will pay no matter who caused the accident, although if someone else is at fault your insurer may subrogate against them, meaning it will seek damages from the other party.

Personal Injury Protection (PIP) coverage pays for medical expenses and lost wages for you and your passengers who are injured in an accident. It also covers funeral costs. PIP is required in 16 states. Do you need it? If you have good health insurance and disability insurance, you can skip PIP or buy only the minimum amount if it's required.

Uninsured/underinsured motorists coverages

States that require PIP coverage

Arkansas
Delaware
Florida
Hawaii
Kansas
Kentucky
Maryland
Massachusetts
Michigan
Minnesota
New Jersey
New York
North Dakota
Oregon
Pennsylvania
Utah

Source: Insurance Information Institute

Uninsured motorists (UM) coverage pays for medical bills if you're struck by someone who is uninsured or if you're a victim of a hit-and-rum driver. UM is required in many states.

Similarly, underinsured motorists (UIM) coverage kicks in when someone causes an accident but doesn't have enough insurance to cover all the medical bills. In that case, the at-fault person's insurance pays out to its maximum and then your UIM coverage pays for the remaining bills, up to your own limit. UIM coverage is required only in Connecticut, Maine, Minnesota and Vermont, according to III.

UM and UIM coverage also cover pain and suffering claims and, in some states, also cover property damage.

The extras

These may seem like little luxuries, especially when you're adding up your premium bill, but in the event of an accident these additional coverages can save you a bundle.

* Rental reimbursement pays for a rental car when your vehicle is damaged or stolen. Check for the per-day dollar limits and overall maximum to make sure you're getting a good value for your premium dollar.
* Towing and labor coverage pays for fees due to road breakdowns.
* Gap coverage for a new vehicle pays the difference between the actual cash value of the vehicle and the amount left on your car loan if your vehicle is totaled.

How to buy

There are several ways to track down the least expensive auto policies, including online rate quotes and local independent agents, both of which will give you rate quotes from several companies to compare. If you have an accident, you want to know that your auto insurer will have great customer service and make the claim process easy and fair. For that, the recommendations of friends and family, especially those who have made claims, can be invaluable.