Top 5 Myths About Auto Insurance is a critical component of responsible vehicle ownership, yet it remains one of the most misunderstood aspects of personal finance. Misconceptions about auto insurance can lead to costly mistakes, inadequate coverage, or missed opportunities to save on premiums. To help drivers make informed decisions, this article debunks five common myths about auto insurance, providing clarity and actionable insights.
Myth 1: Red Cars Cost More to Insure
One of the most persistent myths about auto insurance is that the color of your car affects your premium, with red cars often singled out as being more expensive to insure. This belief likely stems from the assumption that red cars are associated with speed, aggression, or higher visibility to law enforcement, leading to more tickets or accidents.
The Truth
The color of your car has no direct impact on your insurance premium. Insurance companies base their rates on factors such as the make and model of the vehicle, its age, safety features, repair costs, and the driver’s profile—including their driving record, age, location, and credit history in some regions. Whether your car is red, blue, or neon green, the insurer’s risk assessment focuses on data-driven metrics, not aesthetics.
For example, a red Honda Civic will typically cost the same to insure as a white Honda Civic, assuming all other factors (e.g., driver profile, coverage levels) are identical. However, a high-performance vehicle like a Dodge Viper, regardless of color, may carry higher premiums due to its powerful engine and higher repair costs.
Why the Myth Persists
The red car myth may have originated from the association of bright colors with sports cars, which are often more expensive to insure. Additionally, pop culture references and anecdotal stories have perpetuated this misconception. To save on premiums, focus on choosing a vehicle with strong safety ratings and low repair costs rather than worrying about its color.
Myth 2: Older Cars Don’t Need Comprehensive or Collision Coverage
Many drivers believe that if their car is old or has depreciated significantly, they no longer need comprehensive or collision coverage. The logic is that an older car is worth less, so it’s not worth paying for coverage beyond the minimum liability required by law.
The Truth
Deciding whether to drop comprehensive or collision coverage depends on more than just the age or value of your car. Comprehensive coverage protects against non-collision events like theft, vandalism, or natural disasters, while collision coverage covers damage from accidents, regardless of fault. If your car is still valuable to you—either financially or for daily use—these coverages may be worth keeping.
Consider the “10% rule” often recommended by insurance experts: if the cost of comprehensive and collision coverage exceeds 10% of your car’s market value, it may be reasonable to drop them. For instance, if your car is worth $2,000 and the annual cost of these coverages is $200 or less, keeping them could still make sense, especially if you rely on the vehicle and couldn’t afford repairs or a replacement out of pocket.
Additionally, if you live in an area prone to theft, hail, or flooding, comprehensive coverage can provide peace of mind, even for an older car. Conversely, if your car is rarely driven or parked in a secure location, you might opt for liability-only coverage to save money. Always weigh the replacement cost of your vehicle against the premium savings before making a decision.
Why the Myth Persists
The assumption that older cars don’t need full coverage often comes from the declining market value of aging vehicles. However, this overlooks the practical and financial implications of losing a car you depend on. Consulting with your insurer or using online tools to compare coverage options can help you make an informed choice.
Myth 3: Your Insurance Follows You, Not Your Car
A common misconception is that auto insurance is tied to the driver, not the vehicle, meaning your policy will cover you regardless of what car you’re driving. This belief can lead to risky assumptions, especially when borrowing or lending a car.
The Truth
In most cases, auto insurance follows the car, not the driver. Your policy typically covers the vehicle listed on it, including anyone driving it with your permission (known as “permissive use”). If you drive someone else’s car, their insurance is usually the primary coverage, while your own policy may provide secondary coverage if you have liability or other applicable protections.
For example, if you borrow a friend’s car and get into an accident, their insurance would likely cover the damages first, up to their policy limits. If the damages exceed their coverage, your policy might step in, depending on its terms. However, if the car you’re driving is uninsured, you could be personally liable for damages unless your policy includes non-owner coverage or other provisions.
Non-owner car insurance is an option for drivers who frequently borrow or rent vehicles but don’t own a car. This type of policy provides liability coverage when driving someone else’s vehicle, offering protection without insuring a specific car.
Why the Myth Persists
The confusion likely arises from the fact that personal factors, like your driving record, influence premiums, leading some to assume insurance is driver-specific. Always check with your insurer before driving someone else’s car, and ensure the vehicle is insured to avoid unexpected liability.
Myth 4: Minimum Liability Coverage Is Always Enough
To save money, some drivers opt for the minimum liability coverage required by their state, believing it’s sufficient to meet their needs. While this may keep costs low, it can leave you vulnerable in the event of a serious accident.
The Truth
Minimum liability coverage is designed to meet legal requirements, not to fully protect you financially. State minimums are often low—sometimes as little as $15,000 per person for bodily injury and $30,000 per accident. If you cause an accident with significant injuries or property damage, these limits may not cover the full cost, leaving you personally responsible for the difference.
For instance, a serious accident involving multiple vehicles or medical expenses could easily exceed $100,000. Without adequate liability coverage, your wages could be garnished, or your assets could be at risk to cover the shortfall. Additionally, minimum coverage doesn’t include protection for your own vehicle or injuries, so you’d need to pay out of pocket for repairs or medical bills if you’re at fault or hit by an uninsured driver.
To mitigate these risks, consider higher liability limits (e.g., 100/300/100, which means $100,000 per person, $300,000 per accident for bodily injury, and $100,000 for property damage) or an umbrella policy for extra protection. Adding uninsured/underinsured motorist coverage can also safeguard you against drivers with inadequate insurance.
Why the Myth Persists
The appeal of lower premiums drives many to choose minimum coverage, especially for budget-conscious drivers. However, the long-term financial risks often outweigh the short-term savings. Review your state’s requirements and consult with an insurance agent to determine the right coverage for your situation.
Myth 5: Your Credit Score Doesn’t Affect Your Premiums
Many drivers are unaware that their credit score can influence their auto insurance premiums, believing that only their driving record and vehicle type matter.
The Truth
In most states, insurance companies use credit-based insurance scores to help determine premiums. These scores, derived from your credit history, are different from traditional credit scores but are based on similar factors, such as payment history, debt levels, and credit utilization. Studies have shown a correlation between lower credit-based insurance scores and a higher likelihood of filing claims, which insurers use to assess risk.
For example, a driver with a poor credit score may pay significantly more for the same coverage as someone with excellent credit, even if their driving records are identical. However, some states, including California, Hawaii, and Massachusetts, prohibit or limit the use of credit scores in setting insurance rates.
To lower your premiums, focus on improving your credit by paying bills on time, reducing debt, and checking your credit report for errors. You can also shop around for insurers that place less emphasis on credit scores or offer discounts for other factors, like safe driving or bundling policies.
Why the Myth Persists
The connection between credit and insurance isn’t intuitive, and not all drivers are aware of how their financial habits impact premiums. Transparency from insurers about rate-setting practices can also vary, perpetuating the misconception. If you’re in a state where credit is a factor, taking steps to boost your score can lead to meaningful savings.
Conclusion
Understanding the realities of auto insurance can save you money, reduce stress, and ensure you’re adequately protected on the road. By debunking these five myths—about car color, older vehicles, insurance following the driver, minimum coverage, and credit scores—drivers can make smarter choices when selecting policies. Always review your coverage options, compare quotes from multiple insurers, and consult with a licensed agent to tailor your policy to your needs. With the right knowledge, you can navigate the complexities of auto insurance with confidence and avoid falling prey to costly misconceptions.
