Like other types of insurance, you buy car insurance to protect yourself and others in case anything bad happens. Unlike other types of insurance, having car insurance is not optional – it’s the law. When you register your car, most states require proof of insurance.

With auto insurance, you agree to pay a premium and the insurance company agrees to pay any losses as defined in your policy. Policies generally cover you for six months to a year.

Let’s look under the hood at the components that make up most automobile insurance policies:

Collision: Okay, you’re in an accident. To get your car repaired, you’re going to need collision coverage. You’ll first have to pay a deductible amount. That's how much you pay towards the repair before the insurance company kicks in to pay the rest, up to the fair market value of your car (think NADA or Kelley Blue Book). Your car is “totaled” if the repair costs would be greater than what the car is worth.

Liability: Now let’s say you’re the one to blame for the accident. Liability covers the injuries to the people (called bodily injury) and damage to the cars or other

things (called property damage) involved. If you are sued, liability insurance applies to your legal costs, too.

In most states, you’re required to carry liability, and the amount required varies. Certain states have no- fault laws (designed to cut down on the number of lawsuits filed after car accidents) which means each person’s insurance pays for damages and injuries regardless of who caused the accident.

Comprehensive: Imagine that your car gets damaged by something other than a car accident. Comprehensive covers damages resulting from vandalism, fire, lightning, hail, floods, falling trees, hitting animals, etc. You’ll have to pay a deductible amount, as with collision.

Medical Payments or Personal Injury Protection (PIP): PIP pays for medical expenses for you and your passengers injured in an accident. It may cover disability, funeral costs and compensation for pain and suffering (a legal term for intangible costs).

Underinsured Motorist (UIM): Your insurance will pay amounts over what the other driver’s insurance will pay (if they caused the accident).

Uninsured Motorist (UM): UM pays for damage to your car caused by another driver who does not have insurance or in a hit-and-run. This coverage may be required by your state’s laws.

Other: Insurance extras include towing and labor, car rental reimbursement, glass breakage, and umbrella liability for losses in excess of amounts covered by primary liability insurance.

What determines how much you’ll pay for car insurance? Here are some of the factors: where you live, your age, driving record, whether you’re male or female, kind of car you drive, the amount of your deductible and the types of coverage you choose.

With auto insurance, you want to be adequately covered if you get in an accident, but you don't want to pay any more than you have to. How can you navigate your way down this highway of insurance terms and costs?

Comparison shop by looking at prices and services from several insurance companies. Companies sell their policies through their own agents, through insurance brokers who offer insurance

from different companies, and directly to customers over the phone or Internet. Check with your state's division of insurance--many offer free price comparison guides through their Web sites.

Check out what is required by your state. Most require bodily injury liability insurance, but the state minimum coverage amounts may be too low to adequately protect you. Experts recommend that you buy at least $100,000 per person and $300,000 per accident coverage.

Property-damage liability covers repair or replacement of the other person’s car or property. State minimum limits average around $15,000, but with the cost of many new cars averaging $25,000, experts agree you should buy at least $30,000 in coverage.

With UM and UIM coverage, you and your passengers’ medical, rehabilitation, funeral and other costs will be covered. Experts think you should buy this coverage at the same limits as bodily injury liability coverage ($100,000/$300,000).

PIP covers medical, rehabilitation and funeral costs for you and your family, as well as lost wages and in-home care. If you have health and disability insurance, experts believe you should buy the minimum PIP required unless you face very high health-insurance deductibles.

If you have a loan on your car, the lender may require that you carry Collision and Comprehensive coverage. If not, you can probably skip Collision and Comprehensive if: (1) the annual cost of this insurance is more than 10% of your car’s Blue Book value or (2) the car is more than five years old, or (3) you can afford to pay for repairs if necessary.

If you can’t drive your car away from the accident scene, Towing coverage kicks in. If you’re a member of an auto club like AAA.com, you don’t need this coverage.

Rental insurance is great if you travel and rent cars frequently, but skip this coverage if you don’t or if you have another vehicle you could use.

Coverage for glass breakage can add up to 20% to your Comprehensive premium. Try skipping this coverage.

To lower your overall premiums, consider increasing your deductibles. Raising your deductible from $250 to $500 or

$1000 could reduce your Comprehensive & Collision costs by 15-40%.

Inquire about group policies from your employer or alumni and professional associations.

Ask about available discounts, such as those for safe-driver, senior citizen, AAA membership, multiple cars, multi-policy for combining car and homeowners’ policies, low-mileage, anti-lock brakes, airbags or anti-theft devices.

Avoid buying a vehicle that is prone to theft, has a poor safety record or is expensive to fix.

Auto insurance is an expensive reality of owning a car. But if you keep your driving record spotless, you’ll be doing your part to keep the high cost of insuring your ride under control.

Information about the insurance losses for different models of cars is available from the Insurance Institute for Highway Safety.

For insurance department contact info for all 50 states and their auto liability minimum limits, click here.

You can also find assistance through the National Insurance Consumer Helpline at 1-800-942-4242 or Insurance Information Institute at 1-800-331-9146.

See what you learned.

Check out "Rest Assured: Insurance Concepts"