Most states require you to have bodily injury liability insurance on your vehicle, which pays your medical bills and lost wages, the medical bills of others hurt in an accident you caused, and property damage, up to the limits you've chosen. The limits are shown in thousands of dollars as bodily injury for one person/bodily injury for more than one person/property damage. For example, 20/40/10 would mean $20,000 of coverage for one person, $40,000 of coverage for more than one person, and $10,000 of coverage for property damage. Personal injury protection or medical coverage pays your own medical costs if you're injured in an accident. It's required in approximately one-third of all states. Some states also require you to buy additional coverage that will cover your medical costs and lost wages if you're injured in an accident caused by an uninsured motorist.

The legally required minimums for liability coverage are so low that they're not adequate if you own a house or other assets that an injured person could come after if your insurance wasn't enough to cover his or her medical expenses. Unless you have no assets to speak of, you should elect limits of at least 100/300 for bodily injury.

Collision coverage pays for repairing your car if you hit something, whether it's another car, a building, or any other object. Comprehensive coverage covers other types of damage such as theft, broken windshield, fire, flood, falling objects, and so on. If you drive an old beater, you may not need either of these coverages. Cars with a Blue Book value of $2,000 or less are probably not worth insuring for collision coverage, and you'll save a lot of money by dropping it. If you have a good driving record, consider raising your deductible to $500 or $1,000 to significantly lower your collision premiums.

Ask your insurance company about discounts. Many offer reduced premiums if you have more than one car insured with them, if you also have your homeowner's insurance with the same company, if your car has certain safety features such as antilock brakes or air bags, or you have a good driving record. Some cars cost more to insure than others. If your car is expensive to repair or is a favorite with thieves, be prepared to pay higher insurance rates.