Top 14 Car Insurance Myths That Will Cost You

Demystifying car insurance myths is important because it’s good to know the facts about how your car insurance policy works before an accident occurs. Finding out too late that you’re not covered for a certain type of loss or injury can be devastating. Or, you may be buying coverage you don’t even need because you got bad advice. Like most people, maybe you’re wondering why you’re rated the way you are on monthly premiums. Once and for all, let us clear up all the confusion about the top 14 car insurance myths people think are absolutely true.

Myth #1 Red Cars Cost More To Insure

What role does car color actually play in insurance rates?

The most common car insurance myth is that red cars are rated higher by insurance companies, which is simply not true. The insurer will never ask you for the color of the vehicle, for one. Also, the color is not considered a risk. However, black cars are involved in more accidents than white or silver cars, which are more visible, especially at nighttime.

Myth # 2: Credit Scores Don’t Affect Car Insurance

How much does credit score truly impact premiums?

It’s important to remember that not all states allow insurance companies to derive an insurance score using credit scores. In states that do, a low credit score can considerably raise a driver’s rate as well as the rate of other household members if they are not excluded on those policies.

On average, people with a credit score below 550 will pay close to $3,000 a year on car insurance while people with a credit score over 800 pay less than half that amount.⁽¹⁾

Myth #3: Street Parking Doesn’t Affect Car Insurance

Does having a garage always lower rates?

Having a garage will result in a lower car insurance rate than street parking. Street parking will weigh against the policy even more heavily if the neighborhood has a high crime rate. It’s a good idea to visit nearby overnight garages for pricing and see how much the car insurance rate will be lowered if parked overnight in a garage. It may be a wash when it comes to saving money, but at least the car will be protected against theft and vandalism and the driver can avoid paying a comprehensive insurance deductible to claim losses.

Myth #4: Minor Accidents Don’t Impact Car Insurance Rates

What is the impact of minor accidents on long-term rates?

Did you bump a car while backing up in a parking lot and they filed a claim? Your car insurance rate will increase according to the severity of the accident or offense. Your rate will then slowly decrease after the accrued points on your license drop off.

After a car accident, the DMV makes that information available to all insurers for three to five years. A minor car accident drops off sooner than a serious driving offense, like having an accident when driving under the influence (DUI), an offense which lingers for five to 10 years, depending on the losses and the state you live in.

It takes 10 years for a DUI to fall off in California but only five years in Kentucky. A hit-and-run may stay on your record for up to seven years.

Myth #5: Car Accessories Don’t Raise Auto Insurance Rates

How do aftermarket modifications really affect coverage and costs?

Overall, vehicles with modifications cost more to insure because of the need for an added endorsement. Modified cars may also pose a greater risk on the road. For instance, adding height with a lift kit results in the vehicle becoming less stable at higher speeds.

Modified car insurance, also called custom parts and equipment insurance (CPE), provides coverage for aftermarket parts and equipment. Without a CPE endorsement, aftermarket parts may not be covered in an accident. These parts may even invalidate your insurance policy if, for instance, the vehicle has a nitrous kit and you live in Maine.⁽²⁾

Or if the vehicle has a lift kit that raises its height higher than state limits, you may be denied coverage. Some states, like Texas, do not have any lift limits.⁽³⁾

Myth #6: It’s Always Good To Have Full Coverage Auto Insurance

Is full coverage right for me if I have a used car?

One great misconception is that full coverage covers everything and it’s always good to have. Full coverage simply means having state requirements plus collision and comprehensive coverages. Full coverage is usually required when leasing or financing a vehicle and is a wise investment even after a car is paid off but only until the monthly premiums don’t add up to be more than the blue book value of the vehicle minus the deductible.

Generally speaking, you don’t need full coverage on a vehicle worth less than $4,000.

Even with collision and comprehensive coverage, not everything is covered. For instance, without roadside assistance coverage, the driver will need to pay out of pocket for towing charges if the car breaks down on the road. The same goes for a flat tire or if they run out of gas or charge.

Also, the contents in the car are never covered by any type of car insurance, whether the car is vandalized and stolen or if the items are damaged in an accident. The only types of insurance that will cover those losses are renters, condo and homeowners insurance.

Myth #7: Your Car Insurance Premiums Won’t Increase if an Accident Wasn’t Your Fault

If I didn’t cause the accident will my car insurance rate increase?

Even if you weren’t at fault in a car accident, your rate will increase, but not as much as the at-fault driver’s. The logic is that a very safe driver can circumvent a collision, and the DMV offers defensive driver courses too.

Myth #8: You Don’t Need MedPay if You and Your Family Members Have Health Insurance

Why would I buy medical payments (MedPay) coverage if I have health insurance?

It’s common for people to assume that buying medical payments coverage (MedPay) is overkill because they already have health insurance. However, there may be out-of-pocket costs and deductibles with a health insurance policy and MedPay can cover those gaps. Also, for minor car accident injuries, MedPay is more convenient because it doesn’t have a deductible.

Myth #8: All Insurance Companies Will Offer You Pretty Much the Same Rate

Why would I bother talking to a bunch of different insurance agents when they’re all the same?

Another great misconception is that all insurance companies charge in the same ballpark. This is simply not true, just as it’s not true that you can haggle down a car insurance rate. After applying all discounts and bundles, you can’t talk down a car insurance rate. However, each insurance company will offer a different rate or have different discounts. You don’t know which auto insurance company will offer you the lowest rate until you compare insurance quotes and apply all discounts.

Myth #9: Electric Vehicles Are Always More Expensive To Insure

Even used EVs are more expensive to insure, right?

Wrong. A myth about electric vehicles is that they always cost more to insure. How expensive a car is to insure largely depends on its market value. An inexpensive EV won’t cost much more than a gas-powered vehicle, and a used EV will not be very expensive if its value has depreciated, even a year or two.

Myth #10: Seniors Pay More for Auto Insurance

Do you pay more for car insurance in your 50s and 60s?

The truth is that car insurance rates for seniors keep dropping until they reach 70 years of age. There is even a mature driver discount for older drivers offered by many insurers. Car insurance is most expensive in your teens and rates continue to drop as time goes on, unless you have an accident or accrue many points on your license. Here’s one more reason to enjoy getting older!

Myth 11: You Shouldn’t Buy Mechanical Breakdown Insurance if Your Car Is Under Warranty

Are mechanical breakdown insurance and a car warranty the same thing?

When you buy a new car, there is a limited warranty from the car manufacturer and if you buy an extended warranty, it may last anywhere from two to seven years. For example, you may have coverage for five years or 50,000 miles, whichever comes first. It's important to note that your contract ends after five years, even if you only drove 20,000 miles.

Mechanical breakdown insurance (MBI), on the other hand, is a type of insurance, which may cover a new car for as many as 7 years or 100K miles. MBI policies from different insurance companies will differ on the maximum. Both MBI and a warranty cover mechanical repairs that are not caused by an accident or vandalism and both have exclusions.

Unless you’re buying a reasonably priced warranty from the manufacturer, it’s probably more economical to buy MBI from an insurance company over a warranty. Compare both options to see which one covers the most miles or years and then look at pricing. Also, there may be repairs not covered under warranty that MBI will cover so having both is not a complete waste of money.

If you end up buying a warranty, buying a manufacturer’s warranty is always a better option than a company like Car Shield. If you own a Honda, go with a Honda extended warranty or just buy MBI.

Myth #11: With Liability Coverage, You’re Covered for an Accident or if Your Car Gets Stolen

If my car is damaged or stolen, I’m covered with minimum state car insurance requirements, right?

If your car is stolen or damaged due to vandalism, you are only covered for losses with comprehensive coverage. There is a deductible for comprehensive coverage, so if your car is stolen and not recovered, you’d get back what the car was worth that day (according to Kelley Blue Book) minus the deductible amount you chose when you purchased the coverage.

Comprehensive coverage does not cover hit-and-run damage to a car. For that you’d need uninsured motorist coverage or collision coverage, which has a deductible as well.

It’s good to have full coverage (collision and comprehensive coverage) on any vehicle valued at $4,000 or more. In states with high numbers of uninsured drivers, it’s worth the extra cost.

Myth #12: If Someone Borrows Your Car, Their Insurance Covers an Accident

Does car insurance follow the person or the car?

Car insurance most often follows the car, so even if your friend has an accident while borrowing it, your car insurance will cover the car. Just make sure to never loan a car to anyone you may have placed on an excluded driver list. With that said, if you live with a young driver and you do not ever let them take the car, you can exclude that person from your policy, and your rate will go down. That’s because young and inexperienced drivers are considered a big risk due to frequent accidents in their demographic.

Myth #13: You’re Covered for Everything if You Have Full Coverage

Does full coverage cover every type of loss?

There are other types of coverage you may need aside from collision and comprehensive coverage, which make for full coverage. For instance, without uninsured motorist coverage, you’re fresh out of luck if a person with no insurance or too little of it crashes into you and causes expensive damage. If you don’t have gap coverage (see below) on a new car, you may still owe money for it after it’s damaged beyond repair. You’ll need mechanical breakdown insurance if you don’t have a warranty, and roadside assistance coverage is inexpensive and so worth it.

Myth #14: Gap Insurance Is a Scam Car Dealers Try To Push on You

Is gap coverage even necessary if I buy full coverage auto insurance?

Gap insurance could save you from still owing a car note after totalling a car. It’s easy to owe more than a car is worth when buying it new, and the Kelley-blue-book value affects what the insurance company will give you for the car.

A car depreciates roughly 10% in value after you drive it off the lot, but you will still owe 100% of the loan you took out to buy it. If you total the car on day one, you will be paying for 10% of the total cost of the car.

Gap coverage covers the gap between what you’d get paid in a claim and what you still owe. It is only available for new cars. As important as gap coverage is for new car buyers, it is a bad idea to buy gap coverage at the dealership because they charge the highest rates. Buy it from a car insurance company instead.

Remember to always compare auto insurance rates to see who will offer you the best rate. The service is 100% free.