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Driving an uninsured vehicle in the United States is punishable by something as relatively small as a fine or as significant as a prison term. In fact, if you cannot prove that you have insurance on your car when you are pulled over by the police, your license may even be revoked.

However, driving without insurance can hurt you much, much more than that. If you cause an accident where someone is injured and you don't have an insurance company on your side to foot the bill, the injured party or their insurer may sue you personally for damages. Could you pay a $100,000 hospital bill out of pocket? If not, then you could lose all your assets (like your house).

So yes, if you drive a motor vehicle, you need insurance―so that your insurer will be the target of any lawsuit, not you. Every state requires you to prove that you have at least a minimum amount of auto insurance in order to maintain your vehicle's registration. This is for your protection as much as for the protection of others.

What Auto Insurance Does

Auto insurance―also called liability insurance―becomes your financial shield if you are involved in a traffic accident or if your car is stolen or damaged. Your policy is a contract between you and your insurance company: You will pay regular monthly or yearly premiums, and the insurance company will pay for any losses that are covered by that policy.

The policy you take out can never be transferred to another vehicle or to another person. Depending on the coverage you select, it will protect you in these situations:

• If your car is stolen or totaled in a wreck, the insurance company will reimburse you for the cost of the vehicle.

• If you car is damaged in an accident, the cost of repairs will be paid by your insurance company.

• If you are involved in an accident and injure someone else, the legal damages you are liable for (including the victim's medical bills) will be taken care of by your auto insurance provider.

Insurance Plans

The most common types of insurance coverage are liability, collision and comprehensive, medical, personal injury protection (PIP), uninsured and underinsured motorists coverage, and "no fault" coverage. In addition, some companies give you a discount if you insure both your home and car with them.

What Influences Insurance Rates

Insurance premiums are higher than average for male drivers under age 25 and females under age 21, because statistically they get into the most accidents. Older drivers should be aware that discounts are available for people over the age of 50. An accident-free driving record also leads to reduced premiums, and you can get a discount if you insure two or more cars with the same provider.

Cars with passive-restraint systems such as airbags and antitheft devices such as alarms or ignition locks may also reduce your premiums, because they are likely to reduce the severity of injuries in an accident or prevent your car from being stolen.

The age of other licensed members of your household might impact your rates (a teenage driver in the house makes insurers a little nervous). And of course, even one conviction for a criminal driving offense such as DUI or DWI can double or triple your premiums for several years.

Your Insurance Coverage

In every state, you are required to carry a certain amount of insurance to pay for injuries and property damage to others. This "minimum liability" amount pays for other victims in an accident, not you. In theory, if you're a victim in an accident, then the other driver's insurance will pay for your injuries or damage to your car.

That assumes, of course, that the other driver is insured enough to cover you―which might not be the case. For your own insurer to pay the difference, you have the option to purchase additional insurance (many drivers do).

The dollar amount of insurance coverage that your state absolutely requires you to have is often abbreviated as three numbers (for example, 20/50/10). In this example, here's what that means:

• $20, 000 is the maximum amount to be paid per person for injuries from an accident when the policyholder is at fault.

• $50,000 is the maximum amount to be paid for all medical injuries related to such an accident (more than one person).

• $10,000 is the maximum amount to be paid for any property damage caused by the accident (such as to someone's car or even a building).

Each state sets the minimum amount of coverage you must mantain, so those numbers could be 15/30/15, 30/50/30, or something else. And most in the industry recommend a policy that covers you for more than the minimum.

Choosing a Policy

Online insurance is very popular with drivers these days because without visiting an agency, you can get detailed information written by experts, compare various plans, use the online calculator to estimate your premiums, and pay your premium once you have made your decision.

Certain insurance companies have taken advantage of Internet efficiences to establish rates that are quite affordable for the consumer. These companies can provide online access to important details related to their policies―types of premiums, costs, liabilities, submitting a claim, and types of claims that are allowed. If the insurer you select has a help desk, you will be able to call for more information whenever you need it.

Here are some specifics to keep in mind when you are choosing an insurer for your car:

• Insurance rates depend on the model of the car being insured and its age. Expensive new cars call for a higher premium.

• In general, a larger deductible results in lower premiums for the consumer. This means that you'll pay more out of pocket should something happen, but if you've paid lower premiums for years it could be worth it.

• You'll pay less if you take steps that could reduce the amount of any claims. Installing air bags, car alarms, and other safety devices can help reduce your insurance costs.

• Your premium will be lower if you have taken a course in defensive driving, have not received any tickets, or were never at fault in a traffic accident.

The following factors will help you calculate what deductible you can afford to absorb:

• The amount you still owe on the lease or loan for your car.

• The amount of cash you have in your savings account, the amount of credit you can assume, your monthly disposable income (after taking care of expenses), and the current replacement value of your car.

• The period of coverage.

• The crime rate in your area.

• The insurance payout to be made in case of an accident that was not your fault, or for one in which you were at fault.

Remember: Although you may be able to say that you've never had an accident and don't need much insurance coverage, nobody knows what the future holds. Even if the only payout you ever get is peace of mind, you can be certain that auto insurance is one of your most valuable and important expenditures.