In this section, we have discussed the importance of having automobile insurance, homeowners insurance, and liability insurance; we have also discussed how to keep costs low for these types of insurance coverage. Because policies, coverage, and premiums vary so widely, it is wise to research a number of insurance alternatives before making a decision about which policy to purchase.

Auto insurance is insurance that protects you from financial loss if you are in a car accident. It is a contract between you and the insurance company in which you agree to pay a monthly premium and the insurance company agrees to pay a specified amount for any losses defined in your policy. Losses that exceed your policy’s limit are your liabilities, so it is important that you have adequate coverage.

Your home is likely one of the largest single purchases you will ever make; it is important for you to protect this important purchase. Homeowners insurance is one way of protecting your home. The purpose of homeowners insurance is to repair or replace your home in the event that it is damaged by specific disasters such as fire, theft, storms, faulty household systems or appliances, riots, volcanoes, vehicles, or aircraft. Know which risks you want homeowners insurance to cover, and make sure that the policy you choose covers those risks.

An umbrella liability policy is an insurance policy that adds additional protection to the protection provided by your homeowners and automotive policies. This policy becomes effective only after the limits of your homeowners policy or automotive policy have been reached.

Now that you have completed this section, ask yourself the following questions:

1. Can you explain the basics of auto insurance? Do you know how to reduce the costs of auto insurance?
2. Can you explain the basics of homeowners insurance? Do you know how to reduce the costs of homeowners insurance?
3. Can you explain the basics of personal liability insurance?