As a driver, you know how crazy it gets on the road. Between distractions and the rush to get somewhere on time, accidents can and do happen. Fenders get bent and sometimes people get hurt. Even if you're just parked in your driveway, a tree limb can crash through your windshield or someone can steal your car. When the worst happens, auto insurance is there to protect you.

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Why buy auto insurance?

Auto insurance can protect you against the financial risk associated with personal injuries and property damage caused by auto accidents, theft or vandalism. All states require you to purchase at least a minimum amount of liability coverage. Other types of auto insurance coverage may be optional or required, depending on state regulations. If you have a car loan or lease, the lender will also generally require that you purchase coverage for the car itself.

Liability coverage

This is the state-mandated legal coverage you'll be required to have (learn more):

Bodily injury liability: Protects your assets if you are held liable for an auto accident in which other people are injured or killed.

Property damage liability: Covers repairing or replacing the autos or other property of other people.

This coverage will also pay for the legal costs associated with defending you against lawsuits related to accidents. To adequately protect your assets, you probably want to purchase much more than the minimum amount of coverage required in your state.

Collision, comprehensive, uninsured and underinsured motorist, and medical payments coverages

Although these coverages are optional in most states, it often makes sense to purchase them, unless you can afford to pay for losses yourself.

Collision: Pays to repair or replace your car if it's damaged in an accident. (Learn more.)

Comprehensive: Insures your car against damage caused by something other than an auto accident (e.g., theft, fire, flood, vandalism). It is also called other-than-collision. (Learn more.)

Uninsured/underinsured motorist coverage: Unless you live in a "no-fault" state (where your own insurance will cover your losses), this coverage insures you against certain losses caused by other drivers with little (underinsured) or no (uninsured) auto insurance. It can cover things like lost wages as well, and provides coverage to your passengers, and those listed on your policy while riding in other cars or as pedestrians. (Learn more.)

Medical payments coverage or personal injury protection (PIP): Covers various medical and/or funeral expenses for you and your passengers, as well as those listed on your policy while riding in other cars or as pedestrians. (Learn more about: medical payments coverage and PIP coverage.)

Additional coverages

Most of these coverages are optional, relatively cheap and provide a lot of protection, although they may not be helpful in all circumstances.

Gap coverage: Pays the difference between the actual cash value of your car and the amount you owe on your loan or lease if your car is totaled in a covered accident. It is sometimes called loan/lease coverage. (Learn more.)

Towing and labor or roadside assistance: Towing and labor usually covers the cost to tow your car to a repair facility or make minor repairs after a covered accident. Roadside assistance usually covers towing, minor repairs and fuel delivery, even if there was no accident.

Rental reimbursement: Pays the cost of renting a replacement car if yours is not drivable due to a covered accident. Some auto insurance companies will send you a check for part of the allowed amount if you don't rent a replacement car. (Learn more.)

And then the insurance company pays for everything, right?

That would be nice, but it's not always true. Here are some things you'll always need to cover yourself:

Deductibles: The amount of money that you've agreed to pay out of your own pocket before your insurance coverage kicks in. You can have different deductibles for different coverages and liability coverage never has a deductible.

Exclusions: Events or situations your policy specifically will not cover, such as property damage or personal injury you intentionally cause or damage to your own car due to mechanical failure or wear-and-tear.

Costs above policy limits: Any expenses that exceed the the dollar amounts listed on your policy contract for coverage you're entitled to receive.

Driving a good bargain on auto insurance rates

Many factors affect your auto insurance premium, including your age, the state in which you live, the make and model of your car, where your car is parked at night and your driving record. Although you can't do much about some of these factors, here are seven tips for managing your rate:

Increase your insurance deductible

Eliminate optional coverages if you don't need them (e.g., rental reimbursement if you have other means of transportation)

Eliminate collision and comprehensive coverage if you drive an older car that wouldn't cost much to replace and if you could afford to pay for repairs if necessary

Ask about available auto insurance discounts (e.g., low-mileage discounts, discounts for safety or antitheft devices) for your auto insurance (if applicable in your situation)

Avoid buying a vehicle prone to theft or expensive to repair

Drive safely to establish a good driving record

Maintain good credit

Shop around for auto insurance

It's important to shop around for auto insurance coverage. Insurance premiums for the same coverage on the same car can vary widely among different insurers. A particularly good time to investigate your alternatives is when your current insurance policy is up for renewal, but you can shop and change policies at any time. Get quotes from several reputable companies, but don't let price be your only consideration. Make sure the coverage offered by each insurer meets your needs, and find out if the insurer has a solid financial strength rating.

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