A Beginner's Guide to Auto Insurance

How much insurance you'll need may vary based on state laws and lenders requirements.

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urchasing car insurance can be confusing, but it's required by law in all but three states and is also almost always required as part of a car loan. It's important that car owners carry the right coverage, since being underinsured will cost you in the case of an accident or other catastrophe but carrying too much insurance can be a waste of money in some cases.

Car insurance exists to cover the expenses incurred after an accident or other unexpected event causes injury or death to a person, or damages to a vehicle or property. How much insurance will cost you depends on factors such as: what company you buy from, what kind of car you're attempting to insure, your age, your marital status, where you live, your commute distance, and your driving record.

Car insurance can have you covered in the case of an accident.

How much insurance you'll need may vary based on state laws and lenders requirements. Since there are several different types of car insurance, we're breaking them down here to help you choose what's right for you. We ran a few numbers past Esurance.com's search feature to give you a few examples of what insurance might cost.

As an example, we looked at what it would cost to insure a 2013 Honda Accord for a male in his early 30s with one speeding ticket for more than 10 miles per hour over the limit, using esurance.com. Our hypothetical driver has a Chicago ZIP code, and we're assuming that the car has an alarm (which earns a discount) and that there are no other drivers and no accident claims in the last five years. We're also using a $2,000 deductible (a deductible is what you must pay out of pocket before the insurer begins paying expenses) where necessary.

Parked Car: This coverage may be required on cars that are stored in garages for a long time, such as collector cars. Even when parked, a car could be at risk of fire, theft, flood, or storm damage, and this type of insurance covers against that.

Liability: Liability means that you pay for the damage you are liable for--the damage you cause in an accident. There are two types: property damage and bodily injury. As the names imply, property damage covers damage done to vehicles and other types of property, while bodily injury covers medical costs and sometimes covers legal defense costs. At a minimum, car owners should be carrying liability coverage. If our buyer paid off his car and didn't require financing, he could choose liability only, which would cost him $51.65 a month ($37.32 in liability, $12 in property damage coverage, and $2.33 in uninsured motorist coverage). This is with liability limits of $25,000 and $50,000 (the lower number is for one individual, the larger for a group) and a property damage limit of $15,000 (the uninsured motorist limits are also at $25,000 and $50,000.).

Collision: Often required if you have a loan on your vehicle, collision covers damage to your own vehicle. Collision may not be worth it on older vehicles that don't have much value, because there just isn't much value to insure. Collision insurance is often subject to a deductible, and the cost of adding collision can vary, depending on the car's value. On our 2013 Accord, we found that collision added $32.32 per month with a $2,000 deductible.

Sifting through the different types of car insurance can be confusing.

Comprehensive: Comprehensive insurance combines collision and liability while also covering non-accident damages such as theft, vandalism, and acts of God--such as a tree falling on your car. Like collision, it will almost always have a deductible and is often required when financing a vehicle. On our example car, comprehensive added $6.66 per month with a $2,000 deductible. Taken together, collision and comprehensive added $38.98 to the bill, meaning if the car was financed and those items were required, or should our buyer choose to add them on his own after a cash purchase, the total would be $88.80 a month.

Medical Payment: Twelve U.S. states have no-fault insurance laws--meaning one driver isn't found at fault for an accident over the other--and this policy covers medical payments for those involved, no matter who's at fault. This policy is usually optional, since no-fault laws may already cover those costs.

Uninsured Motorist Coverage: This type of coverage exists to protect you in the case that you are involved with a motorist who doesn't have insurance. Even if it is the law, some drivers don't purchase insurance, and this type of feature has your back in case one of them should cause an accident with you. It usually covers medical expenses, but in some states it can cover costs related to vehicle damage as well.