Auto insurance is important to have due to the devastating financial loss should an accident occur and you aren't covered. This type of insurance works like health insurance, wherein you must pay a premium to the insurance company, and in turn, the insurance company will pay the claims that are insured in your individual policy. (Insurance Information Institute, 2014)

Different types of auto coverage

There are many different types of auto coverage to choose from. In fact, there are six different types of coverage, but you will probably not need all six coverages. It is important to discuss which ones you need with your insurance agent since there are so many different choices. The coverage that you need all depends on where you live, whether or not your car is financed and much more. The six main different types of auto insurance are:

1. Liability insurance. Liability insurance is the most popular type of insurance since it is required in many states. (This will be discussed more in detail in the next section.) Should you find yourself in an automobile accident and you are at fault, this type of insurance will cover the cost of any repairs to property (i.e. another car, building). In addition, liability insurance also covers the cost of any medical bills. (Bram, 2014)

2. Collision insurance. Collison insurance will pay for repairs to your automobile should it be damaged in an accident. In the unfortunate event that your car is totaled in an accident, this insurance will pay you an amount that is comparable to the value of your auto. This is a type of coverage that may not necessarily be necessary if you have other means of paying for car repairs. This decision is dependent on one's individual financial situation.

3. Comprehensive insurance. Comprehensive insurance is an excellent choice of coverage because it will cover pretty much any damage that is done to your car. While liability and collision coverage will only cover damages sustained in an auto accident, comprehensive coverage will cover just about anything that might happen to your car such as hair damage, theft, and much more.

4. Medical protection. This type of coverage will protect from the costs of medical bills, no matter who is at fault. Medical protection is extremely important, because medical bills can be extremely expensive and can devastate one's finances. This medical coverage will cover the costs of you and your passengers, should there be any injuries.

5. Uninsured motorist insurance. Uninsured motorist insurance is an important type of coverage to have. Even though most states do require a minimum amount of insurance, this doesn't mean that everyone does what they are supposed to. This type of insurance will help cover damage that isn't covered otherwise.

6. Gap insurance. This type of insurance is not a necessity, and depends on one's individual situation. Gap insurance is for consumers who are financing their car. Should something happen to the car and it needs to be paid off, this insurance will assist in doing that for you. Keep in mind that the reason this type of coverage is helpful is due to the fact that when an automobile is totaled out, the insurance company will only pay out the value of the car. Many people owe more money than what their car is worth, so in that case, this gap insurance is a great idea.

State laws

Each state has different laws when it comes to the type, and sometimes amount, of the auto coverage you have in place. When the state in which you live requires you to have insurance, it is more than likely liability insurance that you will need to get. Even if you don't have a financed car, state laws require you to have a minimum amount of liability insurance. In fact, all fifty states require drivers to carry car insurance.

Other types of auto insurance

• Motorcycle . For people who drive motorcycles, it is important to make sure you have the right type of insurance coverage. According to the National Highway Traffic Safety Administration (NHTSA), 4,957 motorcyclists were killed in 2012, which is a 7% from 2011. (National Highway Traffic Safety Administration, 2014) The different types of motorcycle coverage is the same as auto insurance and includes the following types of coverages: liability, collision, comprehensive, and uninsured/underinsured. There are many ways in which to receive discounts including motorcycle training classes, good driving record and more. (Insurance Information Institute, 2014) Also, just like auto insurance, each state has their own laws and minimum coverage.

• Boat. For the hundreds of thousands of Americans who own boats, it is important for them to have boat insurance. A boat policy can offer the following types of coverage: liability, comprehensive/collision, bodily injury and uninsured/underinsured coverage. As with auto and motorcycle insurance, be sure to check state law to find out if there is a minimum amount of coverage you have to purchase.

Important things to know

• If you are financing a car, more than likely your lender will require you to insure it. Also, while financing, you might think about obtaining gap insurance.

• Your premium payment will be dependent upon a lot of different things such as: what coverages you choose to have, how much your deductible is, such as: your credit score, age, sex, criminal records, where you live, and driving record. There are many things that will impact your auto insurance and how much you will need to pay for your premium. All of this takes place with the insurance underwriter who will look at your application, and pull things such as credit and criminal records, to decide how much of a risk you are.

• When shopping around for auto insurance, be sure to check with your insurance about discounts. There are many types of discounts, such as a good driving record, good student rate, having a car alarm, air bags, or having multiple cars on an insurance policy.

• An important thing to remember that if you should let your auto insurance lapse due to non-payment, you will more than likely pay more the next time you purchase insurance. If you are having trouble making the monthly payments, simply call your insurance agent and they can help find a payment amount you can afford such as raising your deductible or adding more discounts.

• Property coverage – This type of coverage will pay for damage, or even the theft, of your car.

• Liability coverage – This type of coverage will pay for things such as bodily injury or property damage. Note: each state has its own law on how much liability coverage you must have, if any at all. Bodily injury liability coverage is also available.

• Medical coverage – This type of coverage will pay for treating injuries. In some cases, it will even pay for lost wages or funeral expenses.

• Gap insurance – This type of coverage will help pay the difference of what you owe, if financed, and the amount that the insurance company paid due to an auto being totaled out.

• Comprehensive coverage – This type of coverage will pay any type of damage to an auto, such as weather or theft.

• Uninsured motorist coverage – This type of coverage will help pay for expenses incurred by an uninsured motorist.

• Appraisal – An estimate of the property value or the property damage.

• Bodily injury liability coverage – This type of coverage helps cover damage that resulted in either bodily injury or death by another's actions.

• Claim – This is when you suffer a loss, and submit a request to the insurance company to pay for the expense.

• Claims adjuster – This is the person, who is also a representative of an insurance company, who investigates and settles claims. Their job is to make sure everyone is treated fairly.

• Exclusions – Every insurance policy has exclusions, so be sure to check to make sure you know what is excluded. These are items that are not covered by the insurance company.