Key Terms

Generally speaking, when you purchase an auto cheap insurance policy, it is actually a package of several different types of coverage. What are these coverage types and why is each one important?

Bodily injury liability: this type of coverage protects you against being held liable for injury to passengers, pedestrians, and drivers of other vehicles. Copious bodily injury coverage is always a good idea when selecting a policy because this is an area of significant financial liability for most people. Since it is unlikely that you could personally afford to pay for a person's medical care after they are injured in an accident, it is important to get coverage to sufficiently protect you from this type of situation.

Property Damage Liability: as it sounds, this coverage protects you if you damage other people's property, such as a car, a house, or a fence. Since property damage, especially involving damage to another person's vehicle, is common, you may want to increase your property damage liability so that you have adequate coverage for any situation that may arise.

Collision Insurance: refers to coverage that reimburses you for the cost of damage to your own vehicle during an accident. Although people with new or moderately priced to expensive vehicles will probably want to purchase this type of auto cheap insurance coverage, owners of older vehicles may find that it is not worth the expense, because they do not stand to be reimbursed significantly in the case of damages. For example, if your car is totaled, you may end up receiving a lump sum of 500 or 1000 dollars or your car's lowest blue book value even if your vehicle is worth several times this amount. Therefore, collision insurance may or may not be a smart buy depending on the value and condition of your vehicle.

Comprehensive Insurance: similar to collision insurance, because it also protects only your own vehicles. It applies when some types of damages are incurred, such as fire, theft, or natural disaster. Just like collision insurance, those who stand to benefit most from it are those with newer and more expensive vehicles. However, it may also be a good buy for people in areas with high vehicle theft rates.

Underinsured and Uninsured Motorist Coverage: required in some states, but it may be a good idea to add it to your auto cheap insurance coverage even if it is not required. In sum, it protects you in situations in which an accident is caused by an uninsured driver or a person with inadequate coverage. In other words, if your car is damaged or totaled or you or your passengers are injured, there may be no way to recoup damages or medical bills if the driver of the at-fault vehicle is not adequately insured unless you carry this additional coverage. Keep in mind the fact that if you don't have health insurance, getting this type of coverage is essential, because you may be left with substantial medical bills in the case of an accident.

In addition to these basic coverage types, you may be able to add other features to your policy. Some examples of less common features include rental car reimbursement insurance (reimburses you for a rental car if you have to use one while your car is in the shop,) work loss insurance (pays your wages while you are recovering from injuries,) accidental death benefit (pays for a funeral if you or your passengers are killed in an auto accident) and custom parts and equipment insurance (covers any customized components of your vehicle, such as a camper shell, spoiler, or stereo equipment). Whether or not you select these add-ons simply depends on your personal preferences, how much you stand to lose in the case of an accident, and of course, in the case of custom parts and equipment insurance, whether your vehicle has been modified.

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