If you own a vehicle, you have a car insurance policy – coverage that 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 common car insurance myths—ones we’ve heard over and over again while working in a variety of insurance industry positions—to help you better understand how your coverage works.
10. If someone drives your car, they cover any damage
Kicking us to number 10 is the myth that insurance follows the driver, not the car. wrong; It’s another way around. Car insurance follows the car, not the driver. If you loan your car to a friend and they cause an accident, your policy will be the primary insurance. Your friend’s policy may kick in secondarily, but only if the limits of your policy were 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 allow someone else 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. Thankfully for anyone who owns a red car, this is a complete myth. The truth is that your car insurance company does not 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 cost isn’t so much about the color as the custom paint.
8. New cars are too expensive to insure
This isn’t always true, but it’s still a bit tricky because the age of a car has many different aspects that affect rates. First, newer cars are more likely to have advanced safety features that can reduce the risk of accidents and reduce the chance of serious injuries. Both of those things can lower your rate. New cars often qualify for a new vehicle discount, which can offer savings on your car insurance premium. However, newer cars are also more expensive to repair or replace, which can increase rates compared to older models. Finally, newer cars are more likely to require broader coverage and collision coverage than older cars, and more coverage usually means higher premiums. The age of your car affects your rate in many ways, but it’s not as simple as “new cars are more expensive to insure.”
7. A non-fault accident will not affect my rates
If the other driver’s coverage takes care of everything and you don’t make 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 turn in a claim to your insurance company — even if you’re not at fault — there’s a risk that your premiums will increase. You shouldn’t be penalized or charged a surcharge for making a claim because it wasn’t your fault, but if you have a claim-free car insurance discount, you may still lose it, which could result in higher premiums.
6. All car insurance companies are the same
Far from it! 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 for the same coverage. Different companies also have different support. Some common add-ons exist, like car rental coverage and roadside assistance coverage, but you may want to look for a company with more specialized options like ridesharing insurance. Discounts are the same – you’ll 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 scores and financial strength ratings vary widely, and can help you develop a well-rounded view of a career.
5. Your quote will be paid by you
A quote is just that – a quote. Many companies will give you a car insurance quote based on the information you provide. If that information is not correct, your quote may change when you are ready to purchase a policy. Auto insurance companies pull two reports—a comprehensive loss underwriting exchange (CLUE) report and your motor vehicle record (MVR)—before presenting you with a final price and allowing you to purchase coverage. These reports show the history of your insurance claims and traffic incidents. If you do not include this information in your quote, or if the information you include is incorrect, you will see an increase in your final price.
4. You only need minimum coverage
While you only need your state’s minimum coverage levels to legally drive, you may still need additional coverage depending on your state. If you have a loan or lease on your vehicle, you will likely need to purchase full coverage. If you own your vehicle outright and can legally drive it with the state’s minimum coverage, purchasing higher liability limits is usually a good idea. The price difference is usually not huge and you get a lot more financial security.
3. Full coverage covers everything
“Full coverage” is an industry term that means your policy includes comprehensive coverage and collision coverage, which covers damage to your vehicle from various perils. But having a full coverage policy does not mean that you are covered for every eventuality. For example, intentional damage is never covered. Your policy may also contain exclusions about who can drive your vehicle, what type of vehicle use is covered and what countries your vehicle is covered in. When reviewing your coverage with an insurance agent, discuss your policy’s coverage options. Everyone’s definition of full coverage is a little different, and you want to make sure you get 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 may be considering skipping medical payments coverage, especially if you have health insurance. This is not a grand strategy. If you are in an accident, medical payments coverage covers you and your passengers’ medical costs regardless of fault. In some states, personal injury protection (PIP) is available (often required) in lieu of medical payments coverage. If you live in a state where these coverage types are optional and have health insurance, you should still consider purchasing an available option. Limitations on your health insurance policy can leave you with out-of-pocket costs. Your medical payment coverage can also help reduce your health insurance deductible. And in states where PIP is available, you may receive more than just covering medical bills such as child care costs, household responsibilities or lost income.
1. You can negotiate your premium
Pass the mic so we can say it out loud: Wrong! The price you pay for car insurance is impossible to negotiate. Car insurance companies use proprietary algorithms to determine how much risk you present, and your rate reflects your risk level. If you get a lower rate from another company, that company’s algorithm sees you as a lower risk. You can’t take that low quote to other carriers and expect them to match; Those carriers cannot change their rating algorithms to get or keep your business. You can influence your premium by choosing the appropriate coverage and using discounts, however, so there are ways you can lower your price.
The bottom line
Car insurance can be complicated, which is why misunderstandings abound. 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.