Car insurance can be confusing, leading many drivers to believe common myths about premiums, claims, and coverage. However, operating on false assumptions can cost you money or leave you inadequately insured. Let’s debunk some top car insurance myths so you can make informed decisions.
Myth #1: Red Cars Cost More to Insure
You may have heard that flashy red sports cars cost substantially more to insure due to being attention-grabbing targets for thieves and accidents. However, most insurers no longer consider the color of your vehicle when determining rates.
In reality, factors like the make/model, your driving record, location, mileage, and more drive premium costs. Some studies have found certain colors correlate with higher accident rates, but specific colors are not directly used as rating factors anymore. So feel free to get the red car of your dreams without worrying about inflated rates!
Myth #2: It's Fine to Lapse on Insurance Coverage
Going a few days or weeks without car insurance to save money might seem harmless. However, this gap in coverage can have consequences. First, it violates minimum insurance requirements in most states, risking fines or license suspension. Lapses can also lead to non-renewal when you reapply.
More importantly, if an accident occurs when your policy has lapsed, you are fully responsible for damages. Finally, gaps require you to reapply which leads to higher rates compared to continuous coverage. It's simply not worth the risk to drop insurance temporarily.
Myth #3: Declaring Bankruptcy Erases Your Car Insurance Debts
Declaring bankruptcy clears many forms of unsecured debt. However, auto loans or leases and debts owed to an insurance provider are treated differently. Your car can still be repossessed unless you continue making payments after filing for bankruptcy.
Past insurance debts like unpaid premiums or deductibles may be discharged, but this damages your credit and insurance score. Some insurers won’t even cover you after a bankruptcy. It’s best to maintain payments to avoid further financial trouble.
Myth #4: You Don't Need Insurance on an Older Car
Once your car reaches 10 years old or so, you may think insurance isn’t worthwhile and liability is sufficient. But collision and comprehensive coverage can still be valuable. Rates are lower on older cars, and repairs are cheaper.
Plus, liability only covers damage to others. If your car is damaged in an accident, stolen, or experiences weather damage, you must pay out of pocket without collision or comprehensive coverage. Consider keeping these coverages no matter your car's age.
Myth #5: Your Credit Doesn't Impact Premiums
Insurers often use your credit-based insurance score when calculating premiums. Contrary to myth, your credit matters a great deal. Statistics show drivers with poor credit file more claims. Thus, insurers view them as higher risk and charge more.
Improving your credit score by consistently paying bills on time, limiting hard inquiries, and paying down debts can benefit your insurance rate. However, insurers aren't obligated to reveal how they use credit information in their algorithms. There is some variation in impact depending on the company.
Myth #6: Your Insurance Covers Any Accident
Reading the fine print on policies shows there are accidents and situations that basic coverages won’t cover. At-fault accidents may have limited claims under liability insurance. Intentional damages are usually excluded.
Policies also have limits - you may only have $25,000 in property damage coverage, for example. Damages exceeding this limit require you to pay out of pocket. Likewise, accidents involving excluded drivers like unlisted residents of your household may not provide coverage. Don't assume everything is covered.
Myth #7: Adding Teens Raises Rates Astronomically
It's commonly believed that adding a teen to your policy will skyrocket your premiums. In reality, an average of about 50% increase is more typical. Defensive driver discounts, good student discounts, and reducing coverage on older vehicles can minimize the impact.
Statistically teen drivers do pose more risk, so increases are warranted based on actuarial data. But insuring them on your own policy is almost always cheaper than having them get their own policy. And the rate hikes only last a few years until driving skill improves.
Myth #8: You Always Get What Your Car is Worth
After a total loss, you expect your insurer to reimburse you for the current value of your car. However, claims are actually paid based on the actual cash value at the time of loss, minus your deductible.
This factors in depreciation based on age and condition. Unless you have 'replacement cost' coverage, you'll get current resale value, not original purchase price. Review your coverage limits and know the car's depreciation schedule to set reasonable expectations.
Myth #9: Increasing Deductibles Always Saves Money
Higher deductibles equal lower premiums. But don't raise it blindly - in some cases, a lower deductible saves you money overall. Analyze how often you file claims and the average damage amount when choosing a deductible.
If you make a claim yearly for fender benders costing $1500, for example, a $1000 deductible makes sense. Paying higher deductibles with multiple small claims could cost you more than slightly higher premiums with lower deductibles. Run the numbers based on your situation.
Don't Operate on Assumptions
These common myths show why it’s so important to understand the facts about car insurance rather than making assumptions. Talk with your insurer or agent to clarify any points of confusion. Being informed translates to maximum coverage at the best rate possible.