Understanding Auto Insurance:

Don't let a lack of information keep you from the coverage you need. Take a few minutes to learn what actually goes into your policy. It may save you a lot of money and a lot of headaches.

Liability Insurance
This is probably the most important type of car insurance, and it's required by most state auto insurance laws. Liability car insurance protects you against the cost of damage and injury that you cause to another in an automobile accident.

It's actually made up of two different policies, bodily injury liability, and property damage liability. As you might guess, bodily injury insurance protects you from the cost of personal injury to others, and property damage insurance protects you from the cost of damage you cause to any physical property.

You've probably seen automobile policies described by three numbers (like 50/100/25). These numbers refer to auto liability insurance. They're usually called the split limits of liability insurance. Under our example auto liability insurance policy, you'd be covered for up to:

• $50,000 worth of bodily injury caused to another person
• $100,000 for bodily injuries caused to everyone
• $25,000 worth of property damage.

Your state's car insurance laws will require a certain level auto liability insurance. Even though it may be tempting to save a few bucks by going with the minimum liability required in your state, it is always worth investing in a little extra protection.

Medical payments insurance
This policy provides for the immediate treatment of injuries caused by a car accident. You, your family members and other passengers in your vehicle are covered, regardless of who is at fault for the accident. Depending on the specifics of the policy, medical payments coverage may also compensate for lost wages or services of a person injured in the car accident. PIP, or personal injury protection, is similar to medical payments coverage, but usually provides broader coverage. Many PIP policies provide compensation for lost wages, funeral expenses, and pain and suffering.

Most states that require personal injury protection are "no fault" states, but Maryland, Delaware, and Oregon also do.

Underinsured and Uninsured Motorist Insurance
Both of these types of insurance protect you against injury caused in an automobile accident where the at-fault driver's liability car insurance coverage is inadequate. Though they're often lumped together, they're really two distinct policies.

Uninsured motorist insurance is needed when the other driver has no liability coverage.

Underinsured motorist coverage pays for the cost of your injuries that exceed the other driver's coverage maximum.

Most states require neither type of coverage, but some require one or the other, and a few even require both. They're more often required in no fault states.