We rely on our cars for transportation and rarely think about the responsibility of sitting behind the wheel of a powerful vehicle capable of causing considerable damage and potentially taking lives. How do you know if you have the right insurance coverage? Most of us purchase the insurance recommended by our insurance agent without really understanding the basics. A typical auto insurance policy includes different types of coverage in two major categories:

• Yourself and your automobile
• Claims brought against you by others and property damage

The different types of coverage for you are:

• Medical Payments or Personal Injury Protection
• Covers your own medical expenses
• Covers the medical expenses of your passengers
• Collision
• Covers the damage to your own vehicle
• Comprehensive
• Covers damage that may be caused from an event other than a collision with another vehicle, such as fire, theft, falling objects, earthquakes, and floods
• Uninsured Motorist Coverage
• Covers your injuries should an accident occur with an uninsured motorist
• Covers your injuries in the event of a hit-and-run accident
• Provides coverage if you are involved in an accident with someone who is underinsured

The coverage that protects you against claims brought by the other driver and any damaged property is called Liability and includes:

• Bodily Injury Liability covers:
• Injuries received by others
• Legal defense costs
• Claims against you
• Property Damage Liability covers:
• Damage to someone else's property
• Legal defense costs
• Claims against you

Each state sets requirements for minimum insurance coverage; most require that you purchase insurance that will cover any injuries or property damage you cause in an accident. Also, different states have different laws about determining fault in an accident; some states mandate no-fault insurance, and others have tort liability. See the Alabama Insurance Department's list ofno-fault vs. tort claim states. Your auto insurance premiums vary from state to state, in part because of the liability laws for each state.

Your minimum liability limits depend on your state of residence and are generally presented in the following format: 20/40/10. In this example, 20 refers to a limit of $20,000 per individual injured in an accident; 40 refers to a limit of up to $40,000 coverage for all persons injured in an accident; and 10 refers to the property damage limit of $10,000. Your insurance provider will probably recommend at least $100,000 bodily injury liability per person and $300,000 per occurrence. Check with your insurance carrier to find out your state's requirements for liability limits.

Today, we purchase insurance in a package that combines the different types of auto insurance we need into a single plan. Automobile insurance is not "one size fits all." Several variables contribute to how much insurance coverage you will need. The replacement value of your car, the age and driving history of the insured motorists, and the purpose your car serves, will all determine how much insurance is adequate. Additionally, how much insurance you need will determine the cost, or premium of your policy. Other factors, such as your marital status and your state of residence, may provide discounts and set limits that will impact the premium. When you are ready to purchase insurance for your automobile, look for a package that takes your unique situation into consideration. For a general explanation of automobile insurance coverage, see the Better Business Bureau article about thebasics of auto insurance.

In addition to the coverage you select, the premium amount you end up paying will also depend on the deductible amount you choose, the discounts you are eligible to receive, and the cost-savings features you utilize. Since collision coverage is the most expensive component of your automobile insurance, raising your deductible will help you keep your premium payments down. Air bags, automatic seat belts, and a good driving record will open the door to more savings. Your age, state of residence, and even the length of your commute affect your insurance rate. Yearly reviews of your policy will ensure that it reflects the age of your vehicle and your driving record.

For more information about auto insurance, see the State of Alabama's Consumer's Guide to Auto Insurance. Also, the State of Arkansas Insurance Department has a downloadable document 10 Things You Should Know About Buying Auto Insurance.

The best automobile insurance policy for you may take a little research to find just the right blend of features. A little effort may save you a lot of money and worry when you need to call on your policy to work for you. For a more detailed look at deductibles and saving money on your automobile insurance, read the related articles in our Knowledge Center Library.

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• How to Save Money on Automobile Insurance - Many think the only way to save money on car insurance is to raise the deductible. Did you know that your driving habits, commute to work, anti-theft devices and type of car all play a role in obtaining better premiums? When incorporating this debt into your overall financial plan, think about how many of these money-saving methods apply to you, and be sure to let your carrier know that they do. The savings you reap as a result can help you in other areas, like a savings plan or debt management.
  
  
• Renter's Insurance - If your apartment building burns down, your landlord's insurance does cover your personal belongings. This can be especially devastating to those who are working to repair their credit or consolidate their debt because they now have to not only find a place to live, but furnish it upon moving in. That's where renter's insurance comes in. By pricing this insurance and making proper estimates of your inventory, you can have the same peace of mind homeowner's enjoy knowing that your property will be protected in case of theft, fire, even harm done to someone else while in your home.
  
  
• Raise Your Deductibles and Lower Your Premiums! If you don't have a history of accidents and can afford a higher amount should one occur, you may think about raising your deductible amount. Doing so typically lowers your monthly premium. As part of your overall financial plan, look at the higher deductible amounts and their respective monthly premiums to see if the savings are worth it for you.