If you don't already own a car but are getting ready to buy one, the issue of car insurance will come up a lot. If you are buying it on credit from a dealership, you will most likely be forced to buy "full insurance" that covers you completely in the event of an accident. The creditors want to make sure they get their money back.

If you buy it on your own from a private party you may not need to be fully insured, but in many states you need "liability insurance" to even register the car. And without registering you cannot drive it.

It's a good idea to know what the law requires you to have and what additional or optional coverage will help to protect you in the event of an accident. That's the whole point: to be protected in case of an accident, on the road or otherwise (trees falling on your car, loss of it in case of a hurricane or flood etc.).

Before purchasing auto insurance, you must consider a variety of factors including what kind of car you have, your driving record and the amount of money you are willing to pay. Understanding the simple basics of auto insurance will make you confident that the car insurance policy you choose will take care of your needs in the event of an accident.

Types of coverage:

• Liability: pays for accidental bodily injury and property damages to others. Injury damages include medical expenses, pain and suffering and lost wages. Property damage includes damaged property and automobiles. This coverage also pays defense and court costs. State laws determine how much liability coverage you must purchase, but you can always get more coverage than your state requires.
• Collision - This coverage pays for damages to your vehicle caused by collision with another vehicle or object.
• Comprehensive - This coverage pays for loss or damage to the insured vehicle that doesn't occur in an auto accident. The types of damages comprehensive insurance covers include loss caused by fire, wind, hail, flood, vandalism or theft.
• Medical Coverage - Pays medical expenses regardless of fault when the expenses are caused by an auto accident.
• PIP - Personal Injury Protection (PIP) is required in some states. This coverage pays medical expenses for the insured driver, regardless of fault, for treatment due to an auto accident.
• Uninsured Motorist - Pays your car's damages when an auto accident is caused by a driver who doesn't have liability insurance.
• Underinsured Motorist - Pays your car's damages when an auto accident is caused by someone who has insufficient liability insurance.
• Rental Reimbursement - This type of coverage will pay for a rental car if your car is damaged due to an auto accident. Often this coverage has a daily allowance for a rental car.

Many people don't realize that other types of insurance including health insurance and homeowners insurance may pay for damages due to an auto accident. For instance, if you have comprehensive health coverage, you probably won't need more than the minimum required Personal Injury Protection (PIP). Make sure you know what insurance coverage you already have so that you don't purchase unnecessary coverage.

The best way to figure out your own auto insurance needs is to examine potential policies and know how much you are willing to gamble. For instance, it may not be worth it to you to purchase collision insurance if your car is not incredibly valuable and would therefore cost less to fix than to keep insured. Auto insurance is simply about how much you are willing to pay out of your own pocket versus how much you want the insurance company to cover. Once you decide this, you're all set to purchase your auto insurance policy.

Make sure you ask your insurance broker plenty of questions and don't let them push you into buying more than you want or need.

Note: excerpts from howstuffworks.com - "How Car Insurance Works" by Allison Klein.

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