Car insurance is essential for most drivers, but many myths and misconceptions cloud the industry, leading to confusion. Which cars are safer to insure? Can you get cheaper cars by driving a smaller vehicle? These are just a couple of the common questions drivers ask. Misunderstanding car insurance policies can lead to underinsurance of your vehicle or overpaying for coverage.
It’s crucial to separate fact from fiction to help drivers navigate the complex world of car insurance. Car insurance can seem overwhelming, much like other financial services, if you need to be better versed in the terminology and policy details. This confusion can affect decision-making, leading to choices outside your best financial interest.
Myth 1. “Red Cars Cost More to Insure”
The most common misconception about car insurance is that red cars are more expensive to insure than any other car color. Most people think red is the popular color for sports cars and is more likely to be in accidents.
In reality, the insurance companies have nothing to do with the car’s color. Several other factors, including the car’s make, model, year, engine size, and driving history, determine the cost of your car insurance.
Myth 2. “Older Drivers Pay More”
Another myth is that older drivers pay higher insurance. The insurers often observe different factors and if you are an old person with higher experience and less record of accidents and damage, premiums usually decrease as compared to young and fresh drivers with no experience. Older drivers with a clean driving record frequently benefit from lower scores.
Example: A 50-year-old driver with 30 shows of accident-free driving will likely pay less than a 20-year-old who just got their license.
Myth 3. “Your Credit Score Doesn’t Matter”
When calculating your credit score, insurance companies observe factors like age, driving record, and history of making claims. Your credit score is one of the main factors to decide your premiums.
Insurers use credit scores to assess risk. Higher credit scores show that you are a responsible driver with a lower risk of accidents, leading to lower premiums. For example, A driver with a high credit score might receive a lower premium quote than a driver with a lower credit score, assuming all other factors, until they are equal.
Myth 4. “Minimum Coverage is Sufficient”
Myth: Having the minimum required coverage is enough for all situations.
Every state has minimum coverage requirements; these requirements are legally important for car owners to protect them from uncertain events. Some states require minimum liability insurance, Personal injury protection, uninsured/underinsured motorist and medical payment coverage. Still, if the loss or damage exceeds the coverage, you will be responsible for the remaining damage. Coverage might not put you in an accident, especially if you are at fault and the damages exceed your policy limits.
If your state’s minimum liability coverage is $25,000 and you cause an accident resulting in $50,000 in damages, you would be personally responsible for the remaining $25,000.
Myth 5. “Comprehensive Insurance Covers Everything”
Myth: Comprehensive insurance means you are covered for any damage to your car.
Comprehensive insurance covers many types of damage, like theft, vandalism, and natural disasters, but it doesn’t cover everything. Collision coverage, for instance, is needed for accident-related damage.
Example: If a tree falls on your car, comprehensive coverage would likely pay for the repairs. However, if you hit another, using collision coverage would be necessary to cover the damage to your vehicle.
Myth 6. “Full Coverage Means Unlimited Protection”
Myth: Full coverage insurance provides unlimited protection.
Reality: “Full coverage” usually refers to a combination of liability, collision, and comprehensive insurance, but it does not mean you are covered for every possible scenario.
Example: Full coverage will only typically cover you if you use your car for business with commercial insurance.
