While most states require drivers to carry at least liability auto insurance, what an insurance policy covers can vary a great deal by state, policy, and individual. To make matters even more complicated, many people are unaware of exactly what their car insurance covers and when it can help them (and when it won’t!).
Arming yourself with knowledge is important when choosing a policy because it will help you understand the factors that affect your premiums and coverage and choose a policy that best fits your needs.
Here are some of the most common myths about auto insurance.
Myth #1: Auto insurance doesn’t cover you when you’re at fault.
Many people believe their insurance company will only cover them when they are not at fault for an accident. In many states, determining who is at fault for an accident is important as it determines whose insurance foots the bill. Almost all states require that you carry liability insurance which covers repairs and medical expenses to other people when you’re at fault. If you choose optional types of auto coverage like collision coverage and medical payments coverage, your policy will also pay for your damages and injuries, even when you’re at fault.
Myth #2: My insurance will cover me if my car is stolen, damaged, or vandalized.
Actually, you have a great deal of control over what your auto insurance does and does not cover. If you have just standard liability insurance, your policy will not cover you for vandalism, theft, or damage from hail, flood, or falling tree limbs. Upgrading to comprehensive coverage will make sure you’re covered from these events.
Myth #3: My credit doesn’t affect my insurance premium.
The truth is insurance companies consider dozens of factors when setting insurance premiums, including geographic location, car type, age of the primary driver, and yes, credit scores. This is because research has shown that people with bad credit are more likely to make an auto insurance claim so insurance companies offset their risk with higher premiums for drivers with poor credit.
Myth #4: Not reporting an accident will keep my rates from rising.
Many people believe that not filing a claim with their car insurance company and paying the damage themselves will prevent their insurance company from finding out and increasing their rates.
If you were in an accident with another driver, this may not be the case. If the other driver files a claim for damages or injuries, their insurance company will quickly file a claim against you and your insurance company. When this happens, your rates may go up. If you were issued a ticket during the accident, it will also appear on your driving record and may increase your premium.
Myth #5: My insurance policy will pay my car loan off if my car is totaled.
Unfortunately, this misconception can come back to bite you big time. When your car is totaled, your insurance will pay the market value of the vehicle — not the balance of the car loan, which is likely higher than the car’s value, especially if the loan is fairly new and you didn’t put anything down. As the owner, you will be responsible for the difference. This means you can end up stuck with the remaining balance on a car loan with no car to show for it.
The solution to this problem is GAP coverage. Most insurance companies offer GAP coverage that pays the difference between the fair market value of your car and the loan balance. Some lenders also require that you carry GAP coverage until your loan is paid off.
Myth #6: Red cars cost more to insure.
This myth has been around for decades due to the mistaken belief that red cars get pulled over for speeding more than other colors, but the truth is the color of your car is not a factor in car insurance premiums. Car insurance rates are generally determined by your credit history, driving record, age, and your car’s make, model, engine size, body type, and age. Other details of your car may also be taken into account, such as repair costs, the car’s sticker price, the vehicle’s safety record, and the popularity of the car, but the color is never considered.
Myth #7: It will cost more to insure my car when I get older.
Many people believe that older drivers are more likely to be involved in accidents due to slower reflexes, which translates to higher rates. Actually, many drivers over 55 can qualify for auto insurance rate reductions after completing accident prevention courses through AARP or AAA. It’s also important to understand that younger drivers as well as older drivers (older than 70) have the most accidents. Once you turn 25, if your driving record, car information, and other factors remain the same, your rates will likely go down.
Myth #8: My insurance will cover breakdown and mechanical repairs.
Many new drivers have this mistaken belief, but this is not the purpose of insurance. Auto insurance does not cover wear and tear, mechanical failure, or any other types of breakdown that are just part of owning a vehicle.
Myth #9: Auto insurance protects items stolen from inside my vehicle.
While your insurance policy may cover you if your vehicle is stolen, provided you have comprehensive coverage, along with repairs and damages due to a break-in, auto insurance won’t cover you if someone steals anything valuable from your vehicle. The good news is a homeowner’s insurance or renter’s insurance policy will likely protect you against belongings stolen from your car.
Myth #10: If someone else is driving my car, their auto insurance will cover them in an accident.
In most states, the insurance policy that covers the car is considered the primary insurance in an accident. This means the policy of the vehicle’s owner must pay for damages in an accident, regardless of who was driving the vehicle. This doesn’t apply to all states, however.
Myth #11: My auto insurance protects me if I use my car for business.
If you are self-employed and use your vehicle for business reasons, your personal auto insurance may not cover you if you are in an accident. Commercial auto insurance is generally more expensive than personal insurance, but it will be necessary if you use your car for business purposes.
Myth #12: I only need the minimum liability insurance required by my state.
Finally, this is one of the most damaging auto insurance myths because it can put you and others at risk. While most states have minimum auto insurance requirements, the minimum limits are unlikely to cover all of the damages in an accident.
Buying the bare minimum of liability coverage means you will have greater out-of-pocket losses after an accident and the cost can be steep. While the Insurance Research Council has found the average property damage liability claim in 2012 was just more than $3,000, you will easily exceed your minimum coverage limits if you damage or total an expensive or new car in a collision. If your accident leads to a lawsuit and your insurance policy limits do not cover all of the damages, your personal assets will be at risk.
Most experts recommend at least $100,000 per person/$300,000 per accident coverage to protect yourself.