Common Car Insurance Myths to Avoid

By KBB Editors 01/04/2022 4:00pm

There are a lot of myths floating around about what factors do and don’t affect car insurance rates. Some things like your age, driving history, the make and model of your car, and where you live can significantly affect how much you pay. While others, like the color of your vehicle, aren’t included in your insurance company’s rate calculation.

We’ll debunk eight common car insurance myths to help you make the right choices about your coverage.

Myth #1: Red Cars Are More Expensive to Insure

Your car does factor into how much you’ll pay for car insurance, but its color isn’t driving your rates. Instead, insurers consider things like the make, model, how much it would cost to repair, and more.

What Insurers Consider:

Value of the car
Cost of auto repairs
Engine size
Car safety features
Likelihood of theft
Driving history

Myth #2: Comprehensive Insurance Covers Everything

Don’t get fooled by the word “comprehensive” where insurance is concerned. Comprehensive insurance does not mean that it provides total coverage. However, comprehensive does cover many things, which is why it’s sometimes referred to as “other than collision” insurance. It helps pay for damage caused by severe weather, fire, vandalism, animals, theft, falling objects, and more.

Rather than equating comprehensive insurance with full coverage, remember that getting adequate protection typically requires purchasing a few different types of coverage.

The General Rule of Thumb Is:

Comprehensive coverage can pay for car repairs when damage is unrelated to an accident.
Collision coverage can pay for car repairs after an accident.
Liability insurance pays for other people’s expenses when you cause an accident.

Myth #3: Tickets and Crashes Automatically Increase Your Rates

In general, people who engage in risky driving behaviors pay higher insurance rates. But getting a speeding ticket or being involved in an accident doesn’t necessarily mean the insurance company will raise your rates. If you have a single speeding ticket on an otherwise clean driving record, your insurer may keep your rate the same. But if you have multiple violations within a short amount of time, your rates are likely to increase.

At the same time, if you’re involved in an accident that’s not your fault, you’re less likely to experience a rate increase than if you cause an accident. And if your policy includes accident forgiveness, your rates may not increase even if you are responsible.

Myth #4: You Only Need to Worry About Car Insurance for You and Your Household

Uninsured motorists are a big problem on the roads. If an uninsured driver causes an accident, injures you, and damages your car, you could be stuck paying for the resulting medical bills and car repairs.

Uninsured/underinsured motorist coverage can help protect you. If an uninsured driver hits you, it pays for vehicle repairs and medical bills. This coverage also helps if the other driver doesn’t have adequate policy limits to cover your accident-related expenses. Policies usually also cover hit-and-run accidents where the at-fault driver can’t be identified. Some states require drivers to maintain this type of coverage, and in others, it’s optional.

Uninsured motorists aren’t the only people not in your household that you have to worry about. If people who don’t live with you borrow your vehicle, it’s essential to find out if your insurance policy covers them when they drive your car.

Myth #5: A Short Lapse in Car Insurance Coverage Doesn’t Matter

Your personal auto insurance rates can be dramatically affected by a lapse in car insurance coverage. Whether you accidentally let your insurance lapse or voluntarily canceled the plan, you could pay more when you sign back up.

Many insurance companies have a grace period. So you may be able to avoid penalties if you pay your premium before the end of that window. However, if your lapse extends beyond the grace period, it could affect your future rates.

The impact it has will likely vary based on why you have a coverage gap. Perhaps you don’t need coverage because you won’t be driving for a while due to a health crisis, overseas deployment, or travel. If you have a legitimate reason for not maintaining coverage, it may affect your rate less than if you don’t pay your premium and continue driving.

But before you drop your coverage, it’s a good idea to speak with your agent or insurer. It may be a better financial choice to keep your car minimally insured than to leave it parked and uninsured in some situations. They can help you assess the potential impact on your future rates so that you can make an informed decision.

Myth #6: You Can Negotiate Car Insurance Rates

While you can’t negotiate your rate with the insurance company, you can lower your premium if you qualify for available discounts. Insurers offer a slew of discounts to help you save. Offerings vary by company, but common ones include multi-policy, multi-car, good student, and homeowners discounts.

Be sure to ask your insurance company about the discounts they offer and whether you qualify.

Myth #7 You Don’t Need to Worry About Car Payments After Your Car Gets Totaled in an Accident

When you get an auto loan, you sign a contract with the lender that says you’ll make your monthly payments until the amount you borrow gets repaid. This is true whether your car is drivable or not. So, if your vehicle is totaled, you must continue making your payments.

After the insurance company totals your vehicle, a few things may happen:

At-fault accident. If you’re at fault in an accident and have collision coverage, your insurer will send payment to your lender.
Non-at-fault accident. If you’re in an accident and another driver was at fault, their liability coverage should pay.
Non-accident-related damage. If the insurance company totals your car due to non-accident-related damage, your comprehensive coverage will kick in — if you have it.

But in all three scenarios, the insurance company will only provide payment for the car’s actual cash value. Because vehicles usually depreciate quickly, the amount you receive may be less than what you owe on your auto loan. And you’ll be responsible for making up the difference. If you have gap or loan/lease payoff coverage, your policy can help cover the difference between your loan balance and the insurance company payout.

Myth #8: Your Credit Has No Impact on Insurance Costs

Similar to a financial credit score, the insurance industry uses a credit-based insurance score to help determine your car insurance rates.

Insurers develop scores using information from your credit history, including whether you pay your bills on time, your outstanding debt, and the length of your credit history. Your insurance score does not consider your income, however. Instead, insurers focus on financial behavior patterns to predict higher-risk drivers and those more likely to file a claim.

Most, but not all states, allow the use of credit-based insurance scores when determining car insurance rates. Check with your insurance agent to learn about the laws in your state. They can also help you determine which insurance providers work best for people with no or low credit scores if you have less than perfect credit.

What Affects Your Car Insurance Rates?

There are many different factors insurers use to calculate premiums, including:

Age. Younger drivers are more likely to be involved in an accident than older drivers, so they pay more for coverage. Rates typically start declining after age 25 and begin increasing again at age 65.
Gender. In general, women pay less for car insurance than men if all other factors are equal.
Driving history. People with a clean driving record command lower rates than those with moving violations and accidents on their records.
Location. Where you live helps insurers determine your risk of getting in an accident or having your car stolen. People who live in higher-risk areas pay more for coverage than drivers in lower-risk communities.
Type of car. The type of vehicle you drive is one of the most significant factors in determining your rate. Cars that cost more to repair cost more to insure