Liability
Liability insurance is what covers any legal liability if you are involved in a car accident.  This coverage pays for any injuries or damage caused by the accident.  This coverage is the only component of car insurance that you are legally obligated to purchase for your car, and it only covers the cost of damage or injury that you are held legally responsible for in the case of an accident.  This can also include passengers in your own car who are injured in the accident. Parents buying car insurance for young drivers should remember that this coverage does not cover any damage caused to your own vehicle.

Personal Injury Protection (PIP)
Personal injury coverage is only allowed in certain states, and is more commonly known as “no-fault insurance.”  It covers medical and other expenses for people listed in your policy, regardless of who is at fault for the accident.  This coverage will even pay for lost wages should you become disabled because of the accident.

Medical Payments (MedPay)
MedPay coverage pays for the cost of all “reasonable and necessary” medical costs that you incur because of an accident.  Medpay requires prepayment of medical services and the receipt submitted to the insurance company, and then they will provide a reimbursement check.

Most states require either PIP or MedPay, depending on whether the state is a “no-fault” state or not.  Also, depending on the insurance company, you may have an option to purchase either PIP or MedPay for medical coverage.  Never purchase both PIP and MedPay, as they offer the same coverage.  However when deciding between the two, keep in mind that PIP offers greater coverage than MedPay, but it also has a 20% deductible while MedPay has no deductible.

The way to save money on your policy in this case is to make sure that you only purchase one of the medical coverage plans and not both, ideally selecting the less expensive option. In states that allow either coverage on car insurance policies -if you already have health insurance- then decline both MedPay and PIP coverage.  This will cut down on your premium tremendously.

Uninsured/Underinsured Motorist (UM/UIM)
This coverage insures that if you are in an accident with a motorist who has no insurance, or is underinsured, your insurance company will pay for many of the incurred expenses that the other person’s insurance company would have paid for if they had insurance.  If the other driver is underinsured, their insurance company will pay up to the limit set by their policy, and then your UIM coverage will kick in to cover the remainder of the costs.

Typically this coverage will pay for medical bills, lost wages, and even pain and suffering.  It also covers, to a limited degree, lost wages and even payment for psychological treatment.

Keep in mind that often this coverage does not pay for damage to your car.  This is very important to remember before purchasing this coverage component.  If you leave this component out and purchase comprehensive (listed below) only, damage to your car will still be covered even if the other motorist is uninsured.  UM/UIM simply offers the option to cover medical bills and lost wages.  However, if you already have health insurance and disability insurance from your employment, purchasing this component isn’t necessary.

Comprehensive
Comprehensive insurance covers damage or loss that are not a result of a collision, such as  natural disaster, fire, theft, or vandalism.  Deductibles usually apply, but the amount is optional.  The best option is to choose the highest deductible possible to save yourself more off the cost of the premium.
Custom Parts or Equipment (CPE)

This coverage will pay for the cost to repair or replace custom parts or equipment on your car up to a certain limit set by the insurance company.  Additional custom parts or equipment coverage (ACPE) are also available for additional cost which will cover costs for custom parts that are worth more than the lower limit.

This is more of a luxury than an insurance need.  Custom parts can sometimes be quite expensive, however this option should only be selected if the custom parts would cost significantly more than the insurance deductible, which will need to be paid out-of-pocket anyway.

Loan/Lease Payoff
In the case where you are in an accident and your car is completely totaled, this coverage will insure that your insurance company will pay off the remaining balance for the loan, or up to 25% of the cash value of the car, whichever is less.

Roadside Assistance
This coverage provides assistance in the case of a breakdown due to battery failure, flat tire, or any other event that causes it.

Understanding each coverage will allow you to talk with an insurance agent when asking for a quote and to ask for the precise options that you want, and to request the removal of the ones that you don’t need.  For example, if you are a member of AAA already, you have no need for the Roadside Assistance option.  If you have excellent healthcare insurance already and live in a state where MedPay or PIP isn’t required, you can save significantly by removing that coverage as well.  Once you have streamlined your desired policy to only the options that you know you require and nothing extra, you will be able to contact the highly rated insurance companies on your list, receive quotes, and obtain the absolute lowest car insurance rates possible.