12 Fake Myths People Believe About Car Insurance

There’s no shortage of wrong information out there about car insurance. Unfortunately, making decisions based on car insurance myths can and will complicate your life and cost you money. “Millions of Americans really could use a refresher on what insurance does and does not cover,” says senior analyst Laura Adams of InsuranceQuotes.com. And there aren’t just one or two fake facts out there circulating about car insurance either. There are many and that list seems to grow longer all the time, adding onto itself year after year. So much so, that you may actually fear insuring your auto and make a wrong or stupid decision when you do!

There are lots of car insurance myths that people mistakenly believe, and it could be costing you money. Here are 12 myths and the truth behind them.

Whether you are young or old, rich or poor, or just someplace right in the middle, you probably believe some of these ridiculous fake facts. You might have passed on bad info to someone else, like your kids or your friends. So here are 12 fake facts to rethink and get clear on to save yourself some grief and some money on car insurance next time you purchase it!

12 Car Insurance Myths

Myth #1: Red cars cost more to insure than any other color

You are kidding me, right? The color of your car determines how much you will pay???? Yes, it is true that the type of car you drive does help determine how much you’ll pay in premiums, but color isn’t on the table! Totally fake.

Crazy but true, almost half of all Americans (44% according to a study by InsuranceQuotes.com) think that way based on an online insurance survey. Even though insurance companies do consider a myriad of factors in rate calculations, color isn’t one of them.

FYI, some insurance agencies won’t even ask you for the color of your car when you fill out and apply for a quote. If they ask when you are approved, that’s just so it can be identified. Still, millennials in that survey believe the color myth to be true. The same can be said of 45% of college graduates and 42% of Americans with an annual household income of $75,000 or more. Scary, isn’t it?

Myth #2: If you are “at fault” in an accident, your insurance won’t cover you

Forty-four percent of Americans incorrectly believe that their auto insurance will not cover an at-fault driver. In reality, most insurance agreements will pay for repairs even if an accident is your fault. Once again, most millennials surveyed did not know this.

Myth #3: Where you live doesn’t affect your car insurance rates

Many drivers in the United States are unaware that their location can be a huge factor in the rates that they will pay. If you live in an urban area, you will pay more money than if you are in a suburban or rural area because it has more cars and is more congested. That translates into more accidents and higher rates!

In general, higher rates of vandalism, theft, and accidents occur in cities compared to rural areas. But, population isn’t the only factor in play. Insurance rates can spike based on the cost and frequency of litigation, auto repair and medical care costs, likelihood of insurance fraud, and even the weather patterns of where you live. So, theoretically, if you lived on a deserted island and drive only for pleasure 😁, your car insurance cost would be practically zero!

Myth #4: If your car is burglarized, all of the items stolen are covered

About one in three of all Americans believe that items stolen from their vehicles are covered by their auto insurance. This is not the case. Instead, stolen property is protected by a homeowners or renters insurance policy.

Myth #5: If your car is totaled you won’t have to pay off the remainder of your car loan

Unless you carry optional gap insurance to supplement the difference between the balance of your loan minus the fair market value of the car, you could be facing a huge loss if you owe more than the car is worth. Review your options when buying coverage to make sure you minimize this risk.

Myth #6: Comprehensive car insurance covers everything that can happen to your car

Truth: A better way to say it is that comprehensive insurance coverage will pay when your vehicle is damaged by something besides another driver. Essentially, it probably won’t kick in for incidents triggered by a collision. However, it should cover damage caused by things like vandalism, natural disasters, and fallen tree limbs.

Myth #7: When a friend is driving your car, they’re responsible for any damage done to it, not you

While that may be a socially acceptable answer, it’s not the law. In most cases, the owner’s insurance policy follows the vehicle, not the person who is driving it. So even if you weren’t in the car at the time of any accident or collision, you’ll be the one filing a claim and possibly facing a big monetary loss, not your friend.

Myth #8: The best way to purchase insurance is from agents who work for an insurance carrier

Think about this for a second. Going to an exclusive agent directly is like going to one store and buying all of your groceries there without ever checking around to find out what other deals and stores are out there.

Yes, an exclusive agent who works for one particular insurance company does create a personal relationship, and if you have a question or need help with your policy he will be there to help you. But that is not the only point to consider.

Buying through a company agent also means that the agent will receive a commission for their services, and that means higher monthly premiums. Plus there’s little chance they’d ever tell you about any competitor’s policy that’d benefit you more than their employer’s policy does. An independent agent, one not working for a specific company, can provide you with rate quotes from several insurance carriers allowing you to select the one with the best deal for your needs. Since they’re not receiving incentives for the answers you get, they are more likely to be objective and act in your best interest.

Myth #9: You need an insurance agent

Really? Most insurance providers now let clients buy policies directly from them online or over the phone. Within minutes, you’ll have quotes on several policies and be well on your way to the coverage that you actually you need. The process can be faster and your premiums will be lower since you’re not using any agent for most of your policy interactions. Just make sure you read and understand all the fine print so you are not confused. Each year can be a little different so it pays to compare every time you renew!

Myth #10: Not filing a claim after an accident keeps car insurance companies from finding out and your rates will stay low

First of all, some accidents must be reported and it varies from state to state. If someone is injured or if the damage is over the state severe threshold, then not reporting an accident can actually get you into real legal trouble. Make sure you know what the rules are where you live before something happens. Failure to report a “reportable” accident typically results in suspension of your driving privilege.

It’s pretty likely that law enforcement personnel will be dispatched to the scene of an accident by someone—even if you don’t call them. You can rest assured the responding officer will file an accident report that may automatically go to the DMV and then your insurance company has access to it.

Even when you have been injured in the accident and are unable to file a report, have a third party, like an attorney, file a report for you. Just because the other driver initially agrees to skip reporting to the auto insurance company doesn’t mean they won’t have a change of heart later on and file (like if they find out the damage to their vehicle is more extensive than they originally thought). If you exchanged insurance or driver’s license information along with your phone number, you could be staring at a very scary outcome.

The other driver can put all the blame on you for an accident or can report a tiny fender-bender to his auto insurance company and then claim you left the scene after hitting him. Your insurance company will undoubtedly find out when a driver files a damage claim against you through them for an unreported accident. As unpleasant as it may be to report a minor accident to your auto insurer and the DMV, it could save you a lot including policy cancellation, a fine, jail, and even a lawsuit. In the end, it really isn’t worth that risk, is it?

Myth #11: Older drivers always pay more in car insurance rates

While senior drivers do have higher rates than their middle-aged counterparts and often pay more for their car insurance, it’s not always true. There are ways to lower car insurance rates for older drivers. For instance, many car insurance companies offer discounts for senior drivers between the ages of 55 to 70 since their wealth of experience usually makes them safer drivers. Generally, it isn’t until around age 70 that an older driver begins to see the increased rates.

Picking a safer rated car, loading up on safety devices like LoJack, and taking senior-focused safe-driving courses like AARP offers nationwide can save seniors a bundle on their car insurance.

Seniors who drive older automobiles may want to think about dropping collision and/or comprehensive coverages. As a rule, if your vehicle is worth less than 10 times the amount you pay for those coverages, it’s not worth keeping them.

Seniors can also consider raising their deductibles. While having to pay a $1,000 deductible seems steep on a fixed income, if you drive infrequently, the risk of a comprehensive or collision claim is pretty low. You can set aside that deductible savings in an interest-bearing account just in case and then save on the insurance.

Myth #12: Your credit score isn’t used as a factor in determining your premium

It’s actually the flip side of what you may think. Good credit scores reward the fiscally responsible among us with lower rates. If you have no credit history at all (like teens who first get their license and car), it probably means you will get few or no discounts on a new policy.

Some states do bar insurance companies from basing their underwriting decisions solely on credit scores and credit histories, but they can still reward those with good records and histories as they are less of a risk to them. They use various statistical techniques to develop a model that predicts losses based on credit information. A primary way to make your credit rating an asset is to maintain good credit.

Final Thoughts

Knowing the truth behind these car insurance myths can help you make good decisions and even save money on your insurance rates. Other ways to save money include negotiate, negotiate, and then negotiate again. Call your insurer and ask how much you can save if you bundled your car insurance with your homeowner or renter insurance. Ask them if you’re paying for optional roadside assistance. Ask them how much you could save if you pre-pay for the year. Are there other ways that they can suggest to save you money that you haven’t thought of yet?

Do you let ridiculous myths affect you when you buy car insurance? What do you do to really try to save money? Do you review your policy each renewal period and negotiate for the best deal out there? If not, why not?

Related Post:
How to Save on Car Insurance

Financially Savvy Saturdays

About Gary Weiner @ Super Saving Tips

Over the last 45 years I've worked in retail (department stores and supermarkets) and financial planning. In addition, I am a shopper, born and bred, who enjoys the challenges of finding the best items for the best prices. When I'm not busy saving money or writing here at Super Saving Tips, I enjoy baseball, music, and classic movies. I am retired and live in New Jersey with my wife.
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16 Comments

  1. In regards to myth #3, I moved from the Philadelphia area to a more rural area 8 years ago and our car insurance dropped significantly. I thought it would drop a little, but it was more than I expected. Fortunately, I was moving from higher to lower so it was a nice surprise.

    • Good going, Marc. The only suggestion I would have is to check around from time to time to see if there are even better rates than what you currently have because they are constantly competitively battling each other these days. But I’m glad that you have realized such a savings.

  2. Great overview Gary! Regarding #8, my dad used an independent agent for years, and when I started driving I used him too. He was able to find the best rates and coverage for our entire family. It pays to shop around! I’d add a myth about rental car insurance. Most primary insurances cover your rental car, and there’s no need to take out the extra insurance from the rental company. Obliviously you’ll need to know your policy.

    • Great addition, Brian, regarding car rental insurance. An awful lot of people believe that that option is really a requirement. And for many of us, it’s just not true. Even if your policy doesn’t cover car rentals, your credit card might. You also reminded me about shopping around and the fact that you don’t have to wait for a policy renewal to make a change in your insurance company. No matter when you make the change, the company is obligated to refund the unused portion of your policy to you so you don’t lose anything in the process.

  3. I’ve heard the myth about the red car premiums being higher too! I guess the premise is someone driving a flashy car would be a more negligent driver?

    We learned something about our insurance policy when we rented a car in Montana. We thought we might cross the border into Canada, where you’re required to show proof of Canadian coverage. We supplied our broker with the trip dates and received a card showing that proof of coverage, for free. Alternatively, many of the rental companies will provide the same kind of free card if you request it, but I felt better having our own.

    • Thanks for that good tip about car rentals when driving in Canada. It’s much appreciated. If red indicates a flashy driver, what do you think rallye yellow means? I owned a Chevy of that color for several years, but I didn’t get tickets because of it. Guess I’m not flashy enough!

      • Red cars might attract the attention of law enforcement more quickly than more sedate colors?
        A local car dealer by me refers to “re-sale red.” He claims used red cars sell more quickly.

        • It is true that red does draw attention, Louise. When I worked in the retail industry, whenever we put up a new sign for our stores, we always incorporated red boldly in the sign lettering or background. If you do a quick scan around town, you’ll notice a lot of red for that very reason. On the other hand, I’d like to think that our police officers can stop themselves from simply reacting to a red car as it drives by rather than assume it’s doing something wrong…but who knows? Thanks for your comments.

  4. Great list Gary. I’m going to have to quiz my daughter on a few of these ideas. I’m not really sure what they covered in drivers ed class. I can see where many people would have some of these misconceptions.

  5. Great post! Some things I didn’t know in there. Thanks for enlightening me.

  6. All good to know! A few things are new to me and a few things I’ve dealt with. Thanks for the info!

    • Thank you, Vickie. Keep in mind there’s never a bad time to reevaluate your car insurance, and you don’t have to wait til the renewal period to do that. Any changes you make will prompt your current carrier to issue a refund if you change. I’ve done it and it’s paid off for me a few times over the years.

  7. Great tips with a lot of helpful information! I wasn’t even aware of some of this stuff. It’s really important to understand what exactly is covered with your insurance so there are no surprises. I also like your tip about shopping around, which I would add is even important to do periodically to see if you can get better rates. For instance, I switched insurance when I got my own and encouraged my parents to do so too because they were being charged way too much despite being loyal customers for over 20 years. My dad was resistant because of the “relationship” with his agent, but eventually saw that he was charging them way more than he should have been. It pays to check around!

    • You’re so right, Tawnya. It’s actually shocking to me whenever I do my shopping, that the premiums can vary by hundreds of dollars for identical coverage. The “relationship” is something that a lot of insurers promote but to be honest, how often do you actually communicate with your insurance agent. Unless there’s an accident, not too often. So you did a smart thing and hopefully others will too.

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