Sometimes shopping for car insurance can be a nightmare. The terms and conditions of the policy are confusing and complicated. This is why most consumers do not bother reading the terms in their policy, but simply call around for best quotes and accept the lowest bidder.

This isn't always the best approach, and won't always save the most money. The best way to save money is to understand each type of coverage, and only choose only those that you absolutely need.

HOW INSURANCE POLICY CONTRACTS WORK

An insurance policy consists of different components. Each of those components make up an entire insurance policy. Keep in mind that the only component you are legally obligated to have in order to drive your car is Liability. The rest are purely optional coverages that you are free to remove if you wish.

Liability - This covers your legal liability should you damage body or property (BI/PD). The insurance company pays the damages to the injured person, or for property damage that you might be legally obligated to pay.

Medical Payments (MedPay) - This coverage will pay for the cost of "reasonable and necessary" medical care that you may need following an accident.

Personal Injury Protection (PIP) - Some states allow this coverage, otherwise known as "no-fault insurance". This coverage will pay for lost wages if you become disabled and unable to work because of the accident.

Uninsured/Underinsured Motorist (UM/UIM) - This coverage pays for damages, and for your medical care in the case where you are in an accident with an uninsured motorist.

Comprehensive - This covers damage that isn't related to an accident such as natural disaster, fire, theft or vandalism.

Custom Parts or Equipment (CPE) This covers the cost to repair or replace any custom parts or equipment on your car up to a lower limit.

Additional Custom Parts or Equipment (ACPE) This covers custom parts worth more than the lower limit.

Loan/Lease Payoff With this coverage, if your car is totaled the insurance company will pay the remaining balance for the loan or lease, usually up to 25% of the cash value.

Roadside Assistance - This coverage assists you with labor costs as a result of breakdown, battery, flat tire or other events that caused a breakdown.

A consumer who understands these coverages will be able to walk into any insurance office and walk out with the exact coverage they need, at an affordable price. For example, if you are a member of AAA, then you will never need Roadside Assistance. If you have excellent health insurance, you may not require the MedPay or Personal Injury Protection coverage.

Once you understand the components of insurance coverage, you have the power to whittle down those car insurance costs so that you can enjoy the absolute lowest rates available.

Learn more about this author, Ryan Dube.
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