In many states, auto insurance is mandatory and is a condition of your auto registration — if you don't have insurance coverage, you're not registered, and if you're not registered, you don't have insurance coverage. Few people forget to insure their cars, but many people spend too much or carry too little insurance.

Important Features

Auto policies have a collision component that pays for damage to your car. Collision isn't required unless you're financing the car and coverage is required by your lender, but it is a good idea if your car is new or expensive. Most states require a minimum amount of liability insurance to pay for repairs to the other car involved in an accident. Comprehensive coverage pays for damage caused by things other than a vehicle accident, such as fallen tree limbs, fire, and theft. Even if auto insurance is required in your state, you may still be involved in an accident with an uninsured or underinsured driver. Carrying uninsured and underinsured motorist coverage will protect you in this case. Your agent will guide you on the minimum coverages required or recommended in your area, based on your circumstances.

Your insurance company is only required to pay up to the book value — the value on the used-car market — of your car in a loss or damage situation. If you're leasing or financing, consider buying gap insurance to cover the difference between the lease or loan amount and the car's value. Your car might be losing value due to age or wear faster than you are paying down the loan or lease.

Money-Saving Tips

If your car is older than seven years, you may be paying for collision coverage when you don't need it. Increase your deductible to $1,000 and you'll save, especially if you live in a city or drive a car that's easily damaged or a popular theft target.

Make sure you're getting your multiple policy, good driver, and alarm/ antitheft discounts if they apply.

Talk to your agent if you have teenagers driving your car. It may be less expensive to list them as primary drivers on a lower-value car and to carry less coverage on that car than you do on yours.

Small-Business Tips

If you drive a lot for your business, be sure your agent knows it. If your accident occurs on your way to a sales presentation or to meet a client, your auto policy might not cover damages. Tell your agent if you lend your car to employees for errands or deliveries. Depending on the frequency of these trips, you may need to reregister your vehicle as commercial in order to have proper coverage.