If you’re leasing or financing your car, you may need to carry additional auto insurance — namely, comprehensive, collision, and sometimes gap insurance.

Car insurance is designed to financially protect drivers and their vehicles after damaging incidents. A car insurance company's financial resources will compensate you for damages sustained by your vehicle — or others' person or vehicles — if they are affected by a collision.  

What car insurance covers?

In general, car insurance covers damage, vandalism, and theft of your vehicle. But what any specific auto insurance policy will cover depends on the coverage type(s) you have. Each car insurance policy is made up of at least one of the following:

• Liability insurance: Doesn’t cover your vehicle, but covers damage you cause to others in an accident. It is made up of bodily injury (BI) and property damage (PD).

• Collision and comprehensive insurance: Collision insurance covers your vehicle in case of a collision; comprehensive insurance covers your vehicle in the event of anything else (theft, vandalism, etc).

• Personal injury protection (PIP): PIP covers medical expenses, lost wages, and other damages. It’s required in “no-fault” states because it pays regardless of legal liability.

• Uninsured /underinsured motorist insurance: If you’re in an accident with an uninsured driver and they’re at fault, uninsured motorist insurance means you’ll still be covered. Like liability insurance, bodily injury and property damage are covered here, but for you instead of the other driver.

No-fault states are states in which drivers can file a claim with their insurer regardless of which driver is at fault.

How car insurance works.

Some people are hesitant to file a car insurance claim, fearing that their premiums will increase even if they aren’t at fault. However, this isn’t necessarily true, and an insurance company will look at the damage involved and who is responsible for the accident before deciding whether or not a claim results in a rate increase. If you find yourself in an auto accident, whether it’s a fender bender or your car is totaled, exchange insurance information with any involved parties. Even damage that looks cosmetic may have comprehensive damage that you can’t see, so you should file a claim.

Is car insurance worth it?

Besides being legally required in almost every state, auto insurance is an incredibly important part of your financial safety net. The average car insurance claim in 2013 was over $15,000 for bodily injury and over $3,200 for property damage. Car insurance is there to cover medical bills, vehicle repair or replacement, and keeps you off the hook for injury and damage liability for others. Your premiums will go up if you cause an accident, but that’s better than the alternative.

What is a car insurance premium?

An auto insurance premium is the rate you pay an insurance company for the protection it provides. Car insurance premiums can be paid on a monthly basis or paid in full at the initiation of the policy (up-front payment may land you a discount 5-15% saving). How much your car insurance premiums cost comes down to a wide variety of factors

At-fault accidents and car insurance rates:

On average, an at-fault property damage accident will raise your premium by an average of $612 per year. Because most insurance providers will charge you for three years after an accident, this $612 increase equates to more than $1,800 in total fees. If you’re thinking of filing a claim, consider the overall cost of the claim versus what the claim would cost to pay out of pocket. Compare this $1,837 penalty — plus your deductible (if applicable) — to the out-of-pocket expense. While this is nice information to know before filing a claim, it won’t help if you’ve already filed a claim. If you have an at-fault accident on your insurance history, consider USAA or State Farm.

In most states, a DUI is the most costly violation you can receive. Moreover, in states like California, it will stay on your insurance record for 10 years! Based on our analysis of the most popular car insurance companies, this would set you back an average of $1,200 in insurance rate increases during that 10-year period. To limit costs, do your due diligence and shop around: Progressive and USAA are the cheapest insurance options after a DUI — consider starting with those providers.

Like a DUI, a reckless driving citation can raise your car insurance rates. If you’ve received a reckless driving citation, your best bets for cheap car insurance are USAA and State Farm, despite the latter being one of the more expensive insurance companies if you don’t have a violation. This shows the importance of comparing car insurance rates carefully — your driving profile will be handled differently by every carr

6-month car insurance premiums (very poor credit):

If you have very poor credit, the cheapest car insurance company is Nationwide. Here, your premium will be more than $435 less than the group average. Compared to the highest credit level, drivers with bad credit pay nearly $1,450 more per year for auto insurance. If you pay off a loan or otherwise improve your credit score, you should shop around for car insurance as your premium should change. Just another reason to keep your score up!

6-month car insurance cost for fair credit

With rates $400 less than the group average, USAA offers the cheapest insurance for drivers with 'fair' credit scores. Even so, a fair credit score will result in elevated rates. While the average premium for fair credit drivers is $854, that's $229 more than those with 'great' credit are paying, with all other metrics constant.