Auto insurance offers essential coverage, yet it is one of the most confusing insurance products. Without the right information, you can end up buying inadequate or wrong coverage for your vehicle. This can devastate your financial situation in case of an accident.
While auto insurance is simple to understand in principle, it’s surprising how many myths people share about it. These common auto insurance myths and misconceptions could mean you choose the wrong policy, pay too much, or even risk invalidating your coverage. Let’s get down to the facts.
Auto insurance is essential for any car on the road. However, many car owners still consider it an unnecessary expense and look for tactics to avoid it. Many car owners purchase the minimum amount of coverage required by law and argue this is enough.
This is a myth that has grown with time. Yes, it’s a smart idea to make sure you know the minimum coverage amount for liability in your state to avoid legal problems. It is important to note that the minimum coverage required can vary from state to state. Many states set minimum auto insurance as liability insurance up to specific limits. However, this minimum is solely about whether you can legally drive. It doesn’t mean your policy is guaranteed to cover physical injury or property damage costs.
This is just a starting point of your coverage, and you shouldn't stop here for your own good. In the case of an accident, you might be forced to pay more out-of-pocket, and this can set you back financially.
Severe accidents are costly, and if you don't have adequate coverage, you might be forced to go into debt or have your assets attached. The escalating cost of medical expenses, lawsuits, and vehicle repairs can ruin you financially. For this reason, extending coverage beyond state limits is one of the smartest financial decisions you can take. This can include making sure you have comprehensive and collision coverage included in your auto insurance policy.
It is a common misconception among car owners that the color of a vehicle impacts auto insurance costs. For example, it's been rumored that red cars are more likely to be pulled over and, therefore, have a higher insurance premium. At a stretch, you could come up with ways this myth might make sense: perhaps red cars are more popular with reckless drivers who show off on the road. However, auto insurance companies take no notice of car color. Whether your car is red or plain white, this doesn't affect the insurance premium. The only way your car color has an effect is indirectly, namely if it makes it more expensive to replace than the same model in a different color. The insurance company looks at other physical features of the car, including:
Car make and model
The age of the vehicle
Cost of repairs or car replacement after an accident
Likelihood that theft
You might think that as long as you follow the rules of the road, you are always protected by your auto insurance. This isn’t necessarily the case if you use your car for work, for two reasons. The first is mileage. Insurers base your premiums on expected personal use (including commuting) and would charge more if they know you are regularly using your car for work purposes. The other is additional risks and costs from business driving. This could include theft of, or damage to, any company equipment or stock. It could also include the risks of somebody suing your employer, as well as you personally, after a crash.
Exactly what counts as business use (and may not be covered by default) will depend on your policy, so check carefully.
It might seem no problem to let a friend drive your car as long as they have their own insurance. The hitch is that different types of policy (and policy components) work in different ways. For example, in many cases, liability and bodily insurance cover are tied to the specific driver rather than the car. On the other hand, insurance covering damage to the vehicle (such as comprehensive and collision) is often tied to the vehicle and so only covers drivers named on the policy.
The upshot is that if your friend crashes your car, their policy may take care of any medical bills and damages to third parties. However, you could be left footing the bill to repair your car.
This is true in some states (California, Hawaii, and Massachusetts) but in most places, it’s a matter of semantics. Insurers don’t use your traditional credit score (such as FICO) but do use a “credit-based insurance score.” This works in a similar way but takes more account of payment histories and debt while usually excluding personal details such as gender or occupation. It might seem odd, but the Federal Trade Commission examined the issue and found credit-based insurance scores were a sufficiently reliable predictor of the risks for the driver in question.
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Usually, this isn’t the case because parking tickets are classed as a “non-moving violation” and aren’t attached to your driving license in the same way as a speeding ticket. The exception is if you fail to pay a parking ticket, which could affect your credit history and, in turn, your auto premiums.
Older cars account for the largest percentage of all stolen vehicles in the United States. In 2017 most stolen vehicles in the country were at least a decade old.
These older cars have less advanced security systems, and their parts are in high demand. If you have always felt safer because you drive an old car, it's time to review your auto insurance coverage.
This is a common misconception among car owners, yet older drivers are eligible for multiple discounts. If you are a senior, don't stress over the high cost of insurance. Instead, start shopping for car insurance discounts through older driver programs. For instance, completing an accident prevention course qualifies you for a reduction in car insurance rates (up to 10% for three years).
These mature driving courses assure the insurance companies that you can handle the stress on the road. Defensive driving courses can also qualify you for discounts. If you are a retired driver or you no longer work full time, your insurer can offer discounted rates as you now drive less.
The debate on who's a better driver has for long dominated the motoring industry. With time, it has become a hot topic in the insurance industry as many car owners believe providers favor women drivers. If you believe that men pay more for insurance than women, you've fallen for one of the biggest insurance myths.
One of the factors that fuels this misconception is the fact that made drivers under 25 years may fall under the risky drivers' category. It is their age and not the gender that influences the insurers' decisions in this case. Across other age groups, gender is not a consideration.
All factors being equal, a woman driver can pay more than a male one in the same profile. Many other factors come into play when assessing the risk of an individual driver. From their income levels, driving history, credit score, to marital status, these are more solid factors an insurance company considers.
Some states such as including California, Massachusetts, and Pennsylvania, have banned the use of gender as a metric to calculate driver's insurance premiums. If you are a male driver shopping for auto insurance, you have a chance to get cheap rates just like women drivers.
No-fault auto insurance caters for all medical bills of the driver and passenger in case of an accident. It is unique because such payments are regardless of who's at fault. In states with no-fault laws, you need to buy personal injury protection (PIP) as part of your auto insurance policy. But does "no-fault" translate to "it's not my fault?"
There's a misconception that a no-fault gives you a clean pass after an accident. Well, your insurer will pay for all the damages, but if you are responsible, there are some consequences. The first impact is on your auto insurance premiums, which will go up.
In the strict usage of no-fault, this is where insurance companies pay first-party benefits, but there are also restrictions on the right to sue. While these restrictions exist, drivers in no-fault states can still sue for severe injuries if the accident meets certain conditions.
Your insurance company might have paid for damages but don't be surprised if you're slapped with a lawsuit if a third party's case meets the required threshold. If your state requires no-fault insurance, talk to your insurance agent and understand this type of auto coverage fully.
If you upgrade to a higher cost car, you expect car insurance rates to rise, right? If this is what you believe, you're not alone. It is one of the most popular myths in the auto insurance market. However, the price tag of your vehicle isn't the first thing an insurance company looks at.
The primary considerations include the cost of repairs for your vehicle and the vehicle model's loss history. The insurer will consider the number of claims for your car model rather than look at the price tag.
For instance, a $35,000 with a high number of claims will cost more to insure than, say, a high performance worth $55,000, which isn't attractive to car thieves. Some mid-priced vehicles could have higher insurance premiums due to high loss history and costly repairs.
There are a number of things that can have an impact on your insurance premiums or coverage that you may not even know about. What may be true for a friend or family members experience with auto insurance may not be the same for you since every policy is different.
It is important to look at your policy closely for special circumstances, such as safety features of your car, where your car is parked, and how much your car is driven that may have an affect on your policy. Also, many auto insurance policies have a variety of discounts available for you to take advantage of to get a lower insurance rate.
If you are in the market for car insurance, there's a lot of information available to help you make the best choice. However, you have to sift through this information to get the facts. Avoid some of these myths, which can mislead your decision when purchasing an auto policy. Remember that the wrong choice of auto insurance coverage has debilitating consequences in case of an accident.
At PolicyScout, we appreciate the process of buying auto insurance is complicated. We help you find custom coverage to suit your needs. Get the best car insurance quote today with our PolicyScout's free quotes wherever you are. We make your search for cheap auto coverage fast, easy, and hassle-free.