If you own a vehicle, chances are you have a car insurance policy—coverage is legally required in almost every state. But how well do you understand your car insurance? Myths and misconceptions abound, but fear not. Bankrate is here to help you navigate the confusion. We’re using our combined 47 years of insurance experience to debunk 10 of the most common car insurance myths—things we’ve heard time and time again while working in various insurance industry positions—to help you better understand how your coverage works.
10. If someone else drives your car, they cover any damage
Starting at number 10 is the myth that insurance follows the driver, not the car. Wrong; it is 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 come in secondarily, but only if the limits in your policy have been used. Some policies may also have driver exclusions, which may mean that no one else is covered to drive your vehicle, so make sure you understand how your policy works before you give permission for someone to drive your car.
9. Drivers with red cars pay more for insurance
The theory goes that drivers of bright red vehicles are more likely to engage in risky driving behavior and pay more for car insurance. Fortunately for anyone who owns a red car, this is a complete myth. The truth is, your car insurance company probably doesn’t know what color your car is. Color is not a piece of information that car insurance companies use to evaluate your policy. The exception would be if you’re paying extra for coverage on a custom paint job, but even then, the extra price isn’t so much about the color as 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 rates. First, new cars are more likely to have advanced safety features that can reduce the risk of an accident and reduce the likelihood of serious injury if one does occur. Both of these things can lower your rate. Newer cars often qualify for a new vehicle discount, which can offer savings on your car insurance premium. However, new cars are also probably more expensive to repair or replace, which can increase rates compared to an older model. Finally, newer cars are more likely to need comprehensive coverage and collision coverage than older cars, and more coverage generally means higher premiums. The age of your car affects your rate in several ways, but it’s not as simple as “new cars are expensive to insure.”
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 issue out of pocket, this should be true. Unfortunately, if you file a claim with your insurance company—even if you’re not at fault—there’s a risk that your premium will go up. You shouldn’t be penalized or pay extra for the claim as it wasn’t your fault, but if you have a no-claims car insurance discount, you could lose it, which could result in a higher premium.
6. All car insurance companies are the same
Away with that! While most car 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 common extras, such as rental car coverage and roadside assistance coverage, but you can look for a company with a more specialized option, such as ride sharing insurance. Discounts are similar – you’ll likely find common 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 scores and financial strength ratings vary widely and can help you develop a complete picture of a carrier.
5. Your offer 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 correct, your offer may change when you are ready to purchase the policy. Auto insurance companies issue two reports—a comprehensive loss insurance 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 traffic incidents. If you did not include this information in your quote, or if the information you included was incorrect, you will 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 be required to purchase comprehensive coverage. Even if you own your vehicle outright and can only legally drive with the minimum state coverage, purchasing higher liability limits is usually a good idea. The price difference is generally not huge 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, which 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 what locations 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 get the coverage you expect.
2. You do not need medical payments if you have health insurance
If you’re trying to save on your car insurance, you might consider skipping medical payments coverage, especially if you have health insurance. This is not a great strategy. Medical payments coverage covers your and your passengers’ medical expenses if you are in an accident, regardless of fault. In some states, personal injury protection (PIP) is available (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 can leave you with unnecessary expenses. Covering your medical bills can also help cover your health insurance deductible. And in states where PIP is available, you can get more than just covering medical bills, like 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: Fake! Negotiating the price you pay for car insurance is impossible. Car insurance companies use proprietary algorithms to determine how much risk you present 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 to other carriers and expect them to match it; those operators cannot change their rating algorithms to get or keep your business. However, you can influence your price by choosing the right coverage and using discounts, so there are ways to lower your price.
After all
Car insurance can be complex, which has resulted in misunderstandings. Knowing the truth about car insurance is important to making informed decisions about your coverage. Plus, now that you know the truth about common car insurance myths, you can help set the record straight whenever the topic comes up.