Many financial emergencies are caused by major life events, such as a car accident. While the results of such events can be devastating, maintaining adequate insurance is one good way to protect yourself from financial ruin. In fact, for your protection and the protection of those around you, many states now require some types of insurance.

Because there are many types of auto insurance available, it is important to understand what you are getting for your money.

-Liability. The most important type of insurance, liability covers costs associated with property damages or bodily injury caused by you or a member of your household. It could protect you from losing everything in a lawsuit.

-Collision. If your car is damaged in an accident, collision coverage will pay for the damages.

-Comprehensive. Damage to your car by factors other than an accident (fire, vandalism, theft) are covered by comprehensive coverage.

-Medical payments. This coverage guarantees immediate medical payments regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile, even if you are walking or on a bicycle.

-Uninsured motorist. This coverage protects you if you are ever in an accident caused by an uninsured driver. It may also provide protection in a hit-and-run accident.

-Underinsured motorist. If an accident is caused by someone who is not adequately insured, this insurance would cover the additional expenses.

-Gap insurance. A type of insurance growing in popularity, gap insurance covers the difference between an insurance settlement and your loan or lease balance.

-Extra coverage. Some people choose to pay for voluntary coverages. Coverages available include towing insurance, auto glass insurance, emergency roadside insurance, and rental insurance.

-No-fault. No-fault insurance is required in many states. With no-fault insurance, your insurance company would cover your expenses in an accident—regardless of who was at fault. Other drivers would be covered by their own policies. No-fault insurance eliminates the need for accident victims to establish another’s liability in a lawsuit.

Most types of insurance are available with different levels that limit the dollar amount the insurer will pay in the event of an accident. Generally, the lower your limit, the less the insurance will cost you. The potential downside to low limits is that if you are ever in an accident, your coverage may not cover all of your costs.

Some insurance policies also have deductibles. Your deductible is the amount you would have to pay before your insurance policy kicks-in. For example, a $500 deductible means that you pay for the initial $500 of each loss. The higher your deductible, the lower the cost of your policy. However, you should consider how much you would realistically be able to pay if you were involved in an accident.

Also, you should be aware that it’s common for auto insurance companies to use credit information when deciding whether to issue a policy on your car and at what cost. Therefore, it pays to maintain a positive credit history.

Note: I am not an attorney. The above information is being shared for educational purposes and should not be interpreted as legal advice.

The Nissan GT-R has been a hot car this year, winning prestigious industry awards such as Motor Trend’s “Car of the Year.” If you’re looking to save on insurance costs, don’t expect to be cruising around in this sports car anytime soon because Nissan’s GT-R takes first place in another arena: insurance costs. The GT-R is ranked 2009’s most expensive vehicle to insure, totaling in at an average premium of $2,533 according to Insure.com. Your best bargain insurance-wise would be the Hyundai Santa Fe, which has the lowest insurance premium averaging at just $830.

While auto insurance can be pricey, many financial emergencies are caused by major life events such as car accidents or medical conditions, so maintaining adequate insurance is one good way to stay protected from financial ruin. With all the different types of auto insurance available, understanding what you are getting for your money is important.

-Liability is the most important type of insurance and is required by state law. It covers costs associated with property damages or bodily injury caused by you or a member of your family in an accident.

-Collision insurance will pay for the repairs if your car is damaged in an accident.

-Comprehensive insurance pays for damage to your car from factors other than collisions, such as damage from fire or vandalism.

-Uninsured motorist coverage protects you if you are ever in an accident caused by an uninsured driver. It may also protect you against a hit-and-run.

-Personal Injury Protection (PIP) pays medical expenses and lost wages for you and your passengers if you are injured in an accident. If PIP is not required in your state, and you have good health and disability insurance, you can skip purchasing this type of protection or just get the minimum coverage.

-Medical payments (MedPay) will guarantee immediate medical payments regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile, even if you are walking or riding a bicycle.

-No-fault insurance is required in many states. With no-fault, your insurance company would cover your expenses in an accident regardless of who was at fault. Other drivers would be covered by their own policies. This type of insurance eliminates the need for accident victims to establish another’s liability in a lawsuit.

When taking out an insurance policy, finding coverage that meets your needs and the requirements of your state is a top priority. Remember that your insurance must also be affordable.

-Ask your insurance company about discounts. You may be eligible for discounts for being a safe driver, good student, or college graduate.

-Remember, your credit matters. Car insurance companies take your credit rating into account when creating a policy for you. Insurance companies view credit reports as predictors of risk: if you’re responsible with your finances, you’ll be responsible with your car.

-Shop around. Web sites like Insurance.com and Esurance.com let you comparison shop major auto insurance providers to find the best policy for you.