Car or Auto Insurance can be over simplified all too often when in actuality there are a lot of complexities. Getting the policy that best fits your needs is really important and if you intend to buy insurance via a web site or an 800 number you need to educate yourself.

Car Insurance can be broken down into two major categories. Liability coverage and physical damage. We'll talk liability first.

Liability insurance is easiest explained as protecting the other drivers on the road from you. What auto liability insurance does is pay to fix other people's, bodies and property should you happen to damage them. This is where a lot of you are going to want to buy the smallest amount to save the most money. Sometimes I'd agree with you and say, "Hey what've you got to lose" but most of the time as a general rule of thumb the more you buy the better.

The first line of coverage is usually going to look something like this: 25/50/15

These numbers represent your bodily injury and property damage coverage and are talking in thousands. Most states require you carry at least this much if not more. Here's what they mean:

The first number represents the most an insurance company will pay out per person per accident. For instance, if you are in an accident that is your fault and the other party sustains injuries that require $30,000 of medical attention your policy will pay no more than the $25,000 you purchased.

The insurance company calls this paying the limit on your policy and when they've done that you're on your own. Whatever balance is remaining after that whether it's $5k or $500k the injured party will have to attempt to recover that from you personally. Hint, lawyers usually involved, if you have a house or valuable possessions, kiss them good-bye.

The next line or the 50 represents the most medical bills the insurance will pay per accident. For example if you are involved in an accident considered your faultand you run into a car carrying three people doing $20,000 worth of bodily injury to each person. The insurance company will pay the medical bills equally on those three injured parties until they have reached the $50k mark. You probably can guess what happens after that. It involves sharks..oops I mean lawyers.

The last number or the 15 represents property damage coverage. Pretty self explanatory but this provides coverage for damage you do to other peoples property. This includes everything from, cars, to telephone polls, to houses, and everything in-between.

It's absurd the state lets you carry such low limits of this coverage. The average vehicle on the road today probably is worth at least $10k-$15k. Then imagine if you were to total someone's new BMW. You're $15,000 of insurance isn't going to go very far.

So now you know what you're buying you have to decide how much you need. Here are the incriments auto insurance is typically sold in:

25/50/15
50/100/50
100/300/100
250/500/250

I personally don't believe you should buy more insurance than you need and become insurance poor. If you're an 18 year old kid and only have two pennies to your name there's going to be nothing to take from you there's really no point to run out and buy the most insurance you can. On the flip side if you've got a house, cars, investments, etc you don't want to lose that because you were too cheap to spend a couple extra $$ per month for the better coverage.

If you look at the cost of health care today you'll realize that your $25-$50k of insurance isn't going to be but a drop in the bucket if you injure someone. Pony up for at least the 100/300/100 limits and at least get a quote of what the next step up looks like so you know.

The other major component of auto insurance is physical damage coverage which protects your car in case of an accident. This coverage applies when you are in an accident that damages your car and it's either A)Your Fault or B)The Person hitting you is uninsured.

Comprehensive Coverage
This coverage provides protection for most everything that is not covered by your collision coverage which I'll outline below. Typical things that will be covered by comprehensive are:

-Glass Breakage
-Stolen Vehicle
-Vandalism
-Burning (House burns down with vehicle in garage)
-Hitting animals like deer
-Tree falling on vehicle

When buying comprehensive you have to choose a deductible. Deductibles range for comprehensive coverage anywhere from $0-$2500 with the most common being $100, $250, or $500. What deductible means is that is what you are going to pay out before the insurance kicks in. ie..If you have to replace your windshield and the cost of the windshield is $400 and you have a $100 deductible the insurance company is going to pay $300 and you'll be out $100. Typically if you need just a rock chip repaired the company will foot the entire bill for that. Make sure you ask.

Collision Coverage

Collision coverage is protects your vehicle when you are in an accident with another car and it's your fault. It also comes with deductibles like comprehensive coverage but typically people have a little higher deductibles like $500 or $1000. The higher deductible you choose the cheaper your monthly premium will be but the more out of pocket you will pay at the time of a crash. I personally carry $1000 comprehensive and collision deductibles and have never had to use either. I have saved literally thousands in premiums through the years.

However you do have to able to afford to carry a higher deductible. If you are in a crash and can't afford the $1,000 to get your car fixed having the insurance really does you no good.

Towing & Rental Car Coverage

You can purchase towing and rental car coverage for usually a couple extra dollars a month. This coverage provides coverage for towing expenses and rental car expenses that arise from an accident.

People asked all the time if the rental car coverage would pay for a rental car when they went on vacation and decided to a rent a car. No, you still have to pay for that.

The towing coverage however can be used even if no accident is involved. Typically you have to pay the towing bill yourself and send a copy to your insurance company and they will re-imburse you.

Some companies have special programs and coverages available that I did not talk about here because there are just too many out there to outline. When you are online or on the phone getting quotes I suggest asking about anything extra they provide so you at least know.

I have outline the extra coverages offered by the companies above that I suggest in the quotes section.

It's unfortunate but many people out there drive around without insurance. Some people can't get it, some people can't afford it, and some people just plain refuse. If I had it my way it'd be those people who ran into eachother and left the rest of us law abiding citizens alone.

Uninsured motorists insurance simply pays out when someone without insurance hits you and does you or someone in your car bodily injury. Uninsured motorists is typically accompanied by under-insured motorists coverage as well. This means if they only have the minimum limits of $25k/$50k and you end up with $30k in hospital bills your underinsured motorists coverage would kick in the extra $5k.

The biggest claim I ever saw was an under-insured motorist claim and it paid out $250k so it's certainly not a coverage you want to go without. Both of these coverages are sold in the same incriments that regular liability insurance is sold in and pay out just like liability insurance. One thing I often see is people buying limits like this:

Bodily Injury & Property Damage 100/300/100
Uninsured & Underinsured Motoris 25/50

My question is why would you buy more insurance for people you are going to hit than you would buy for yourself if someone hits you.

Medical Payments and Personal Injury Protection (PIP) are considered no fault insurance meaning that when a claim is paid out on these coverages it usually does not count against you as a claim.

Medical Payments is usually sold in incriments like
$1k $2.5k $5k & $10k
PIP coverage is usually sold at either $10k or $15k

What these coverages are used for would be things like small accidents. If you were to run over your friends foot and he went to the emergency room to get an x-ray it would be covered up to the amount you had purchased. If it went over that your liablity insurance would kick in and it WOULD count against you as a claim.