It is compulsory to purchase car insurance before driving on public roads.

Penalties for not purchasing car insurance vary by country, often involve a substantial fine, license and/or registration suspension or revocation, as well as possible jail time. Usually the minimum required by law is third party car insurance to protect third parties against the financial consequences of loss, damage or injury. Typically, coverage against loss of or damage to the driver's own car is optional.

Insurance coverage levels should cover some or all of the following items:

The insured party
The insured vehicle
Third parties
Liability to bodily injuries
Liability to property damages
Collision Insurance
Comprehensive Insurance
Medical Expenses Insurance
Coverage for uninsured motorists

Different car insurance policies specify the circumstances under which each item is covered. A vehicle can also be insured to includes against theft, fire damage, or accident damage separately.

Depending on the country's law, the car insurance premium can be either mandated by the county or determined by the insurance company in accordance to a framework of regulations set. In most countries, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.

When the car insurance premium is not mandated by law, it is usually derived from the calculations of an actuary based on statistical data. The car insurance premium can vary depending on many factors that are believed to have an impact on the expected cost of future claims. Those factors can include the car characteristics, the coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute for work or not, predicted annual distance driven).