If you own a vehicle, there’s a good chance you have auto insurance policy—coverage is legally required in almost every state. But how well do you understand your car insurance? There are many myths and misunderstandings, but fear not. Bankrate is here to help you cut through the confusion. We’re using our combined 47 years of insurance experience to debunk 10 of the most common auto insurance myths—things we’ve heard time and time again while working in various positions in the insurance industry—to help you better understand how your coverage works
10. If someone else drives your car, they cover all damages
Our takedown at number 10 is the myth that insurance follows the driver, not the car. wrong; it’s the opposite. Car insurance follows the car, not the driver. If you lend your car to a friend and they cause an accident, your policy will be the primary insurance. Your friend’s policy can be seconded, but only if your policy limits have been used up. Some policies may also include driver exclusions, which may mean that no one else is allowed to drive your vehicle, so make sure you understand how your policy works before you give someone permission to drive your car.
9. Drivers of red cars pay more for insurance
The theory goes that drivers of flashy red vehicles are more likely to engage in risky driving and pay more for car insurance. Fortunately for anyone who owns a red car, this is a complete myth. The truth is, your auto insurance company probably doesn’t know what color your car is. Color is not part of the information auto insurance companies use to evaluate your policy. An exception would be if you pay extra for a custom paint finish, but even then the extra cost isn’t so much for the color as it is for the custom paint itself.
8. New cars are more expensive to insure
This isn’t always true, but it’s still a little tricky because there are many different aspects of a car’s age that affect the levels. First, new cars are more likely to have advanced safety features that could reduce the risk of an accident and the likelihood of serious injury should one occur. Both of these things can lower your rates. Newer cars often qualify for a new vehicle rebate, which can offer savings on your auto insurance premium. However, newer cars are also likely to be more expensive to repair or replace, which can increase rates compared to an older model. Finally, newer cars are more likely to need comprehensive and collision coverage than older cars, and more coverage usually means higher premiums. The age of your car affects your rate in several ways, but it’s not as simple as “new car insurance is expensive.”
7. A no-fault accident will not affect my rates
If the other driver’s coverage takes care of everything and you don’t file a claim with your insurance company, or if you and the other driver handle the problem out of pocket, that should be true. Unfortunately, if you file a claim with your insurance company – even if you are not at fault – there is a risk that your premium will increase. You shouldn’t be penalized or charged extra for the claim because it wasn’t your fault, but if you have a no-claims auto insurance discount, you could still lose it, which could result in a higher premium.
6. All car insurance companies are the same
Far from it! While most auto insurance companies offer similar coverage, other factors set them apart. Each company has its own rating system, which means you’ll get different rates from different companies even for the same coverage. Different companies also have different approvals. There are some general add-ons, such as rental car coverage and roadside assistance coverage, but you may want to look for a company with a more specialized option, such as carpool insurance. Discounts are similar—you’ll likely find general discounts with most insurance companies, but some carriers offer more unique savings. Some companies have local agents, while others do everything digitally. Finally, third-party customer satisfaction ratings and financial strength ratings vary widely and can help you develop a well-rounded picture of the carrier.
5. Your bid is what you will pay
A quote is just that – a quote. Many companies will give you a car insurance quote based on the information you provide. If this information is not accurate, your quote may change when you are ready to purchase the policy. Auto insurance companies pull two reports—a Comprehensive Loss Underwriting Exchange (CLUE) report and your Motor Vehicle Record (MVR)—before they present you with the final price and allow you to purchase coverage. These reports show your history of insurance claims and road accidents. If you haven’t included this information in your bid, or if the information you’ve included is incorrect, you’ll likely see an increase in your final price.
4. You only need minimal coverage
While you only need your state’s minimum levels of coverage to drive legally, you may still need more coverage depending on your situation. If you have a loan or lease on your vehicle, you will likely need to purchase comprehensive coverage. Even if you own your vehicle outright and could legally drive with only the minimum state coverage, purchasing higher liability limits is usually a good idea. The price difference is generally not much and you get a lot more financial protection.
3. Full coverage covers everything
“Comprehensive coverage” is an industry term that means your policy includes comprehensive coverage and collision coverage that cover damage to your vehicle from various perils. But having a full coverage policy doesn’t mean you’re covered for every eventuality. Willful damage, for example, is never covered. Your policy may also have exclusions about who can drive your vehicle, what types of vehicle use are covered and in which countries your vehicle is covered. When reviewing your coverage with an insurance agent, discuss your policy’s coverage options. Everyone’s interpretation of full coverage is a little different, and you want to make sure you have the coverage you expect.
2. You don’t need medical payments if you have health insurance
If you’re trying to save on your car insurance, you might be considering skipping medical coverage, especially if you have health insurance. This is not a great strategy. Medical payments coverage covers your medical expenses and the medical expenses of your passengers if you are involved in an accident, regardless of fault. In some states, personal injury protection (PIP) is offered (often required) in lieu of medical payments coverage. Even if you live in a state where these types of coverage are optional and you have health insurance, you should still consider purchasing the available option. Limitations on your health insurance policy may leave you with out-of-pocket costs. Covering your medical payments can also help cover your health insurance deductible. And in states where PIP is available, you may get more than coverage for medical bills, such as help with childcare costs, household responsibilities, or lost income.
1. You can negotiate your premium
Pass the mic so we can say it out loud: False! Negotiating the price you pay for car insurance is impossible. Auto insurance companies use their own algorithms to determine what kind of risk you are, and your rate reflects your level of risk. If you get a lower rate from another company, that company’s algorithm sees you as a lower risk. You can’t take that lower quote from other carriers and expect them to match it; these operators cannot change their rating algorithms to get or keep your business. However, you can influence your premium by choosing the right coverage and using discounts, so there are ways to lower your price.
The bottom row
Car insurance can be complicated, leading to misunderstandings. Knowing the truth about auto insurance is important to making informed decisions about your coverage. Plus, now that you know the truth about common auto insurance myths, you can help clarify the truth when the topic comes up.