When buying auto insurance, do you really know what you are getting and why? The language used in auto insurance ads and policies often is misleading or confusing—and can lead you to be underprotected or overcharged.

Solution: Do what the insurance industry hopes you won’t do—understand the tricky auto insurance terms explained below. Then you will be able to ask the right questions when buying auto insurance…reject the options you don’t need…avoid hidden auto insurance traps…and get the best price for the protections you do need…*

Terms you may think you understand but don’t…

“New-car replacement.” If your car is totaled in an accident, you typically get only its depreciated value, which may be less than what you still owe on your car loan. New-car-­replacement coverage is an option that pays the full cost (minus your deductible) for the latest make and model of your vehicle, up to 110% of the manufacturer’s suggested retail price.

What’s tricky: New-car replacement can increase your premiums by 15% or more. Plus, the coverage is available for only a limited time for any given car. ­Example: Ameriprise and Liberty Mutual offer new-car replacement until cars are one-year old or have been driven 15,000 miles (whichever comes first).

What to do: From a financial standpoint, most drivers should skip this coverage. It’s unlikely to pay off, considering that there is less than a 1% chance in any given year of having an accident in which one’s vehicle is totaled.

“Gap coverage.” This option often is pushed on people who have made small down payments on their vehicles. It pays the difference between the balance of a loan due on your totaled vehicle and what your insurer pays you if the car is totaled.

What’s tricky: What this covers can vary. Example: Most gap coverage does not include your out-of-pocket deductible. However, Allstate’s gap coverage pays deductibles up to $1,000. And although gap coverage typically pays off your car loan regardless of your car’s value, Progressive’s version pays a maximum of just 25% of the car’s actual cash value at the time of the accident.

What to do: This might be a cost-effective add-on for some drivers who still owe a lot on their cars because it typically costs just $30 a year and the premium decreases as the vehicle ages. And you can drop it after a few years as you pay off the loan. Before you buy it, be sure to clarify with the insurer the extent of the coverage.

Decreasing deductible.” This feature, also known as “vanishing deductible,” reduces the deductible on your collision insurance without increasing the premium if you remain accident-free. Example: At Travelers, the Premier Responsible Driver Plan will reduce your deductible by $50 every six months that you go without an accident, up to a total reduction of $500.

What’s tricky: To qualify, all drivers covered by the policy must remain ­accident-free. That includes accidents that aren’t your fault, such as another car hitting yours. If you have an accident, your original deductible is reinstated and you must reestablish a clean record to qualify for future reductions. This feature typically is available only as part of an upper-tier insurance package that adds 5% or more to your premiums.

What to do: It’s not worth that extra cost on its own, so be sure you think it’s worth paying for the package, which can include new-car replacement and/or accident forgiveness.

“Accident forgiveness.” This feature helps you avoid a rate increase following your first at-fault accident. Without this benefit, some insurers push up base premiums by 10%, 20% or more after just one accident, and the higher rates can last as long as five years.

What’s tricky: The coverage may exclude teenage drivers. If you do have an accident, it may take three to five years to requalify for this feature.

What to do: This essentially is asking you to pay up front for accidents you might have in the future. Avoid this coverage unless you are a very bad driver.

“Appraisal clause.” If you and the insurer can’t agree on how much will be paid to repair or replace your vehicle after an accident, this clause allows for the appointment of an appraiser by each side. If the two appraisers can’t agree, they can jointly choose a third appraiser as umpire.

What’s tricky: Under an appraisal clause, the insurer might be able to force you to accept arbitration rather than take the matter to court. Also, the appraisers may have a conscious or unconscious bias in favor of the insurer.

What to do: You always want to retain the option to get a lawyer and go to court. Twenty-six states prohibit or restrict insurance companies from imposing this type of arbitration on drivers. Check with your state’s department of insurance. If your state allows forced arbitration, this is an important consideration in choosing insurers. Check whether a potential insurer includes an appraisal clause in its policy.

“As defined by us.” This phrase can refer to a variety of different terms or concepts in a policy. Watch out when it’s used to give the insurer the right to make its own determination about the proper cost for a repair even if that is a below-market rate. Look for this phrase in the limits of liability section of your policy.

What’s tricky: You might be stuck paying the difference if you want to use a repair shop that’s more expensive than the insurer deems necessary.

What to do: If you have a favorite auto-repair shop, ask the insurer whether it has approved and paid for work at that shop in the past. If not, find out which shops the insurer knows in your area that will accept its rates and make sure that you are OK with using them…or seek another insurer.

“Collision” and “comprehensive.” You probably already know the basic meaning of these ­auto-insurance terms—but it’s not their meaning that often trips up drivers. Collision includes damage to your car when you hit another car or an inanimate object such as a tree or fence or you drive over a hazard such as a deep pothole. Comprehensive (really not comprehensive in its extent of coverage) covers loss or damage caused by an event other than what collision covers, such as fire, theft, vandalism or hitting an animal.

What’s tricky: Despite what many people think, no state requires either of these two types of coverage. What’s required by most states is liability coverage, which protects you if you’re at fault for an accident and the other car is ­damaged or if the driver and any passengers in either vehicle are hurt. However, if you have a loan on your car, the lender probably requires that you carry both collision and comprehensive.

What to do: In general, drop collision coverage, which can be about three times as expensive as comprehensive, when the value of your car is less than 10 times the annual cost of the collision coverage. Set aside what you save on your premiums for buying your next vehicle.

“Uninsured/underinsured motorist.” This coverage protects you if you’re in an accident involving an at-fault motorist who has no insurance (or not enough) to pay for your damages and/or medical care for injuries. Or if the other driver cannot be located (a hit-and-run). If you live in one of the dozen states with no-fault insurance, insurers typically don’t offer this option. (In no-fault states, if you are injured in an accident, your auto insurance covers both your vehicle damage, regardless of who was at fault, and your medical expenses through a personal-injury-protection policy that you are required to buy.)

What’s tricky: Of the states that do assign fault in accidents, 23 do not require drivers to have uninsured/underinsured motorist coverage. Insurers in those states generally offer this coverage as two separate policy options—one for uninsured/underinsured motorist property damage (UMPD), the other for uninsured/underinsured motorist bodily injury (UMBI).

What to do: Everyone should consider having UMBI, even in a no-fault state, if the option is offered. Reason: About 15% of cars are uninsured, and many insured cars are covered by low-tier policies with low coverage limits. If you are hit by an uninsured or ­underinsured driver and incur medical expenses, your UMBI coverage kicks in before your health-care insurance coverage does. That means you typically won’t face out-of-pocket deductibles and co-payments. UMBI also will cover some lost wages, depending on the policy, if your injuries prevent you from working and may compensate you for your pain and suffering, which your health-care insurance may not. How much UMBI coverage you need will depend on what other insurance you already carry, including any short-term disability insurance, and the out-of-pocket requirements of your health insurance. Consider getting at least “100/300” coverage (a maximum of $100,000 for your injuries and up to $300,000 total for injuries to everyone in your car).

“Credit-based insurance score.” Yes, there is a score related to your credit that can affect your auto insurance rates.

What’s tricky: This special credit score, used by almost all auto insurers, comes from the same company that issues the FICO credit score used by mortgage lenders and other lenders, but it’s not the same score. Government studies have shown a correlation between credit scores and the likelihood of filing auto insurance claims. The lower a customer’s credit score, the greater the likelihood he/she will make a claim. Car insurers believe that this is because people who manage their money responsibly also are more careful in how they drive. (Note: Three states—California, Hawaii and Massachusetts—prohibit auto insurers from using consumer credit information to determine premiums.)

What to do: You cannot get access to your credit-based insurance score. However, you should monitor your regular credit reports to make sure that they are accurate, and ask to be reevaluated by your insurer if you have found and corrected errors in your reports.

“Multipolicy discount.” Some insurers reduce your a­uto-coverage premiums as much as 10% to 15% if you buy one or more other types of insurance from them such as a homeowner’s policy.

What’s tricky: You don’t necessarily save money bundling policies. An insurer that specializes in insuring cars may have its homeowner’s business handled by a third party and offer uncompetitive rates or less comprehensive coverage.

What to do: Shop for the best rates on comparable policies, including discounts and bundles at various insurers.

*Availability and details of various types of coverage in this article may vary by state.

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