Let's start with third-party liability coverage. This type of insurance covers the third-party involved in an accident, not you (first-party) or a second-party (insurance company), but the unfortunate soul who is also involved in the accident. Third-party liability coverage pays for the injury and harm caused to third parties. There are two types of third-party liability coverage. The first type is bodily injury liability, which covers medical expenses, lost wages, and pain and suffering. The second type is property damage liability, which covers property like someone's car, a lamppost, etc. Property damage expenses pay for the repair or replacement of things you damaged. Both types include legal protection up to certain limits.

If you own a car, you need both types of third-party coverage. In fact, most states have minimum required levels for third-party liability coverages. Some states often require as little as $20,000 per person or $40,000 maximum, but that is hardly enough. You should have a minimum of $100,000 per person or $300,000 per accident.

Now let's move on to first-party injury coverage which covers expenses for you and your passengers. This type of insurance covers expenses rather than liability. There are some additional policies you can buy such as medical payments, personal injury protection, and uninsured and underinsured motorist coverage. Medical payments (MedPay) cover medical and funeral costs for the driver and passengers in your car, regardless of who is at fault. Personal injury protection (PIP) basically extends medical payments coverage to include lost wages. In states with no-fault insurance laws, this coverage is often required. Uninsured motorist insurance covers you and your passengers when the driver who is at-fault is not properly insured or is a hit-and-run driver. It allows you to make a claim against your own insurance company for injury costs.

First-party property coverage is usually the most expensive piece of auto insurance and includes collision and comprehensive coverage. Collision insurance covers damages to your car from an automobile accident, regardless of who is at fault. Comprehensive insurance covers damage to your car that is not caused by an automobile accident, but rather, damage caused when the car is at rest. It covers damages as a result of theft, vandalism, natural disasters such as a tornado or hurricane, hitting a deer, or a branch falling on your windshield. With collision and comprehensive coverage, you don't have to choose limits. It is a simple yes or no option. If you vehicle is leased or has a loan against it, the bank or lessor will require you purchase both types. But if you own the vehicle outright, you should check on the book value of your vehicle to see if the insurance is worth it. You can find out the value of your vehicle by going to Kelley's Blue Book. If your car is worth less than what you're paying for the coverage, you're better off without it.

If you do purchase collision and comprehensive coverage, you must decide on the size of your deductible - the per-accident, out-of-pocket expenses you must pay before the insurance payments kick in. You can save money on your premiums by choosing a higher deductible, say $500. But remember, you must pay the amount of your deductible before the insurance company kicks in any money, so be sure you can afford the deductible before you choose that higher deductible.

So, you are probably thinking that you may have to sell your vehicle and start taking public transportation because you can't afford auto insurance. But wait! There are some ways to lower your premiums so that you can afford to keep your auto and your auto insurance. First, consider increasing your deductible, which can significantly reduce your premium. Second, if you have an older car, cut your coverage by dropping comprehensive and collision insurance. Third, buy a low-theft car. Do some comparison-shopping and check out the insurance premiums on different models of cars. Your premiums will be lower on a car that is considered a low theft risk. Fourth, drive carefully and minimize your moving violations (speeding tickets, DWI, reckless driving). Keeping a low amount of points on your license will help keep insurance premiums low.

Now, let's talk about renters insurance. Most of you probably haven't even thought about getting some type of insurance to cover your personal property such as your clothes, furniture, tv, etc. You can protect your belongings by purchasing renters insurance, which is similar to homeowners insurance for those who rent. Renters insurance will protect your property from theft, fire, and other perils. One common myth is that your landlord's insurance protects you. This is false. Your landlord's insurance only covers the dwelling and does not cover your personal property. Another myth is that you don't own that much stuff and that it isn't worth buying insurance. This is also false. Your possessions are worth more than you expect. Think about the hundreds of CDs you own. At $10 per CD, you probably own a couple of thousand dollars worth of CDs. And your bed, dresser, and couch add up to several thousand dollars, as well as your stereo equipment, tv, skis, bike, jewelry, and clothing. Once you make a list of all your belongings and estimate their value, you realize that own thousands of dollars worth of property. The average person has over $20,000 worth of stuff. Surprised?

In order to protect your belongings, you should buy renters insurance. Most renters' insurance policies will cover all of your personal property. And protection is worldwide. If your clothes are stolen while you are on a vacation in the Bahamas, you are covered. Nice, isn't it? As you can see, renters insurance is one type of insurance you should not be without.