Insurance in General

• Insurance is intended to protect against the small but real risk of catastrophic loss. Because cars are expensive for most drivers, and a valuable asset, drivers pay a small monthly premium to the insurance company. Safe and lucky drivers might never, in a lifetime on the road, ever file a claim. However, if a driver experiences a catastrophic loss, including having his vehicle totally destroyed or having several people sent to the critical-care ward for six weeks, the insurance company will compensate the driver or the victims based on the specific plan the driver purchased.
  
  

Minimum Requirements

• The most basic form of coverage that satisfies state requirements is bodily injury and property damage coverage (sometimes called public liability and property damage). This covers, up to a defined maximum amount, the amount the insurer will pay to cover a driver's injuries or major property damage to anything other than the driver's own car (which carries no coverage at all). The state-required minimum package is often ideal for drivers who are unconcerned about their own car--for example, a 35-year-old rust bucket with a cracked windshield and starting problems.
  
  

Typical Packages

• Check the terms of your auto loan carefully--most lenders require specific minimum coverage that exceeds the state minimum. For example, many lenders require collision coverage. This type of policy covers the cost of repairs to your own vehicle up to a specific dollar amount (this amount, called the deductible, is the amount the driver kicks in before the insurance policy will pay out). Collision coverage also pays the cost of vehicle replacement if the car is totaled, up to certain limits.
  
  The other major policy type is comprehensive coverage; it covers damage resulting from non-moving accidents (e.g., shopping-cart dents) and natural disasters or severe weather damage. Despite the name, comprehensive coverage does not include collision coverage. Comprehensive is often valuable for high-crime areas, or areas with severe weather.
  
  

Amenities

• Most insurance companies offer a host of extras, including emergency roadside assistance and free rentals during repair windows. These amenities are often nice when they are used, but a budget-conscious driver must weigh the likelihood of use against the ongoing monthly costs associated with these perks.