Function

• Often referred to as the "financial responsibility law," this regulation requires motorists operating on public roadways to prove they have the financial wherewithal to pay for damages at the time of involvement in a vehicle accident or convicted of a traffic infraction. Many states require you to produce proof of insurance to register and license a vehicle. The minimum liability insurance coverage protects you from legal liability if you injure another person or cause property damage and are found at fault for the accident.
  
  

Types

• Car insurance law has two components: bodily injury liability and property damage. Liability means you have protection up to a certain amount in case you are responsible for an accident. It also pays for your legal defense coverage and court fees. Overages are available, but the law does not require you to purchase the overages. Underinsured and uninsured motorist coverage helps if the other driver caused the accident and does not have insurance or does not have enough coverage for medical care or property damage.
  
  Collision insurance pays for damages should you crash into an object, such as another car, building or utility pole. Comprehensive coverage pays for the cost of your vehicle in cases of theft, fire or other unforeseen occurrences.
  
  

Size

• Typically, you will see coverage amounts demonstrated as 20/40/15 or 25/50/20. The first two numbers denote coverage for bodily injuries liability limits. The third number refers to property damage liability limits. An example of 20/40/15 indicates that each individual who receives injury in an accident would get a maximum of $20,000 with the amount not to exceed $40,000.
  
  This indicates two victims receive coverage per accident. If three or more individuals receive injuries, the first two who file get the coverage and the third person would have to sue you for costs of an accident you caused. The coverage for property damage goes up to $15,000 per accident.
  
  

Considerations

• Many people elect the least amount of coverage because it provides a better fit for their budgets. You need to decide what coverage beyond the minimum you need; often it depends on your lifestyle. People with more assets have more to lose and may elect to take on additional coverage. Many agents recommend 100,000/300,000/100,000 level of coverage as of May 2010.
  
  

Expert Insight

• Edmunds.com senior consumer advice editor Steve Reed recommends you look at your other insurance policies to ensure that you do not pay for car insurance you already receive. He says that a good health insurance plan may enable you to pay just for minimum car insurance personal injury coverage, or in some cases, eliminate it completely depending on the law in your state. He cautions that you may have to pay the deductible in certain cases.