Car insurance is a contract that basically says you'll pay money to the insurance company and later, if you have a car accident that's covered by the policy, the insurance company will pay you money.

You could pay for car insurance and never use it. But in the event of a big accident, you could receive far more than you've paid in.

Car insurance is a financial safety net. It saves you from the potential financial disaster of owing someone thousands or even hundreds of thousands of dollars after a car accident. Getting car insurance quotes is easy and comparing quotes can save you hundreds of dollars.

Car insurance requirements

Most states have laws requiring "financial responsibility" for accidents you cause. Most car owners choose to buy car insurance to meet this requirement. If you live in New Hampshire, you don't have to buy auto insurance unless you cause an accident.

You may not be aware that many states have alternatives to car insurance, but they usually aren't very appealing. They usually involve posting a bond with the state for $50,000 or more.

What does car insurance cover?

If you cause an accident and have no auto insurance, you can be faced with bills for:

  • Others' injuries.
  • Damage to other cars.
  • Damage to others' property such as fences.
  • Your own car's damage.
  • Your own medical bills.
  • Legal costs if the other driver sues you.

A variety of types of car insurance are available to pay the bills for all of the above.

Liability car insurance is required when you buy car insurance. It pays for damage and injuries you cause to others. Amounts of liability coverage are often written as three numbers. These refer to the maximum limits your insurer will pay for injuries per person, injuries per accident and property damage per accident.

For example, 25/50/10 means:

  • $25,000 bodily injury liability per person.
  • $50,000 bodily injury liability per accident.
  • $10,000 property damage liability per accident.

Some states also require:

  • Uninsured/underinsured motorist coverage for your injuries and your passengers' injuries if you're in an accident caused by a driver with no liability insurance or not enough. In some states you can also buy uninsured motorist property damage coverage to cover your car damage from an uninsured motorist.
  • Personal injury protection (PIP) or medical payments (MedPay) coverage for you and your passengers' injuries regardless of who was at fault.



Also worth consideration are:

  • Collision insurance for your vehicle damage after hitting objects such as trees, poles or other cars.
  • Comprehensive insurance for car theft and also damage to your vehicle due to weather, fire, explosions, vandalism, floods and animal-related crashes.

And many auto insurance companies offer numerous other options, such as:

Rental reimbursement coverage if your car is being repaired after an accident.

Mechanical breakdown insurance for car problems not due to accidents, like engine trouble.

Roadside assistance coverage for problems like flat tires and getting locked out.

Pet injury coverage for pet injuries or death due to an accident.

Gap insurance for paying the difference between what you owe on car loan or lease and the insurance check for a totaled car.

How does a car insurance deductible work?

An auto insurance deductible is the amount of money that will be deducted from an insurance claim check. Comprehensive and collision insurance insurance have deductibles if you make a claim. For example, if you have collision insurance with a deductible of $500 and you cause $3,000 in damage to your car, your insurer will pay the remaining $2,500.

The lower the car insurance deductible, the higher your premium will be.

Liability insurance does not have a deductible.

What affects car insurance rates?

Here the are the factors that usually help determine rates. These can vary by state and insurance company.

Location: Where the car is "garaged."

Credit: Poor credit often leads to higher rates. (Except in California, Hawaii and Massachusetts, where auto insurers can't use credit in setting prices.)

Driving history: Many insurers look back three years at your driving history. They look for accidents, claims and moving violations. Some violation convictions, like a DUI, can affect your rates longer.

Vehicle model: A model's claims history affects its rates. So if other people have crashed the model a lot, you may pay more. This is why sports cars are often the most costly to insure. See the cheapest cars to insure.

Your age: Younger drivers usually suffer under the highest rates, which usually start to go down around age 25.

Lapses in coverage: If you've had gaps in auto insurance you'll likely pay more. In addition, there are penalties for driving without insurance if you're caught.

There are usually many ways to potentially get discount auto insurance. Your insurance agent can review available discounts to make sure you're getting all the price breaks possible.

How to buy the right car insurance

First, decide what types of car insurance you want. Maybe you want a policy with only the state-required liability insurance. Or maybe you're interested in full coverage car insurance. The choice depends on how much you want to pay and how much safety net you want in the event of an accident. Generally, people with assets to protect in a lawsuit need more car insurance.

If you're buying collision and comprehensive insurance, choose a deductible amount. Would you rather have higher premiums and lower deductibles or vice versa?

Next, compare rates from multiple companies if you want to find cheap car insurance. Shopping around is the best way to save money.

An auto insurance agent can help you choose the right coverage for the possible problems you want to cover.