Car Insurance Myths – Fact or Fiction?
Posted on Thu, Apr 28, 2011
Auto insurance can be confusing enough. Don’t be duped by some old wives tales. Here is the low down on some of the top car insurance myths.
Myth: Red cars cost more to insure
Color is not a factor used to calculate car insurance rates — car insurance companies typically don't even ask you what color your car is. However, they are interested in the following factors: year, make, model, body type, engine size and age of your vehicle, as well as drivers on your policy. The color may be important to you, but it really doesn’t matter to your insurance company.
Myth: Credit scores have nothing to do with insurance rates
Insurance carriers DO look at your credit history and use information from it to calculate your insurance score. This score is used when determining your car insurance rate. If you have trouble paying your bills, car insurance companies can worry about you paying your premiums and some studies have shown a link between driving record and credit rating.
Myth: Thieves prefer to steal new cars so I don’t need comprehensive on my old car
Statistics show that thieves actually prefer to steal older, trustworthy vehicles, such as a Honda Accord or Toyota Camry. Because of the popularity of these cars, there's a large demand for their parts. When thieves steal the cars, they can strip the parts and sell them.
If you have an older vehicle and have dropped comprehensive coverage to save money, you are not covered for theft and do not qualify for rental car coverage.
Myth: If a friend driving my car causes an accident, their insurance will cover it
If you give someone permission to drive your car and that person crashes, it will be your insurance – not your friend's policy – that covers the damages. In most states, the car insurance policy covering the vehicle is considered the primary insurance, which means that the insurance company for the vehicle must pay for damages caused by an accident.
If your vehicle's insurance limits are too low and don't cover all the damages, your friend's policy can be tapped for the remainder of damages.
Myth: Personal car insurance will cover you for business use of your car
Depending on your situation you could find yourself uncovered if you happen to be using your car for business purposes, so double check to see what is included in your policy if you do use if for work purposes on occasion.
Myth: Cheaper cars cost less to insure
If your cheaper car has a large engine, weighs a lot or is an unusual model, it might cost more to insure than a more expensive small car. However, if you have a cheaper car, you will pay less for Comprehensive coverage, which covers damage caused by vandalism, hail, fire or animal accidents.
Myth: If my car is totaled, my insurance will pay off what I owe on my loan or lease
When your car is totaled, your policy will pay you the actual cash value of your car, minus your deductible. Actual cash value is the amount your car was worth before the accident, factoring in depreciation. You are still responsible for any amount outstanding on the loan or car lease.
The only way to cover the difference between the car's cash value and the amount you owe on a loan is to purchase gap insurance. Gap insurance covers you if your car is totaled before you’ve paid off the loan, or before the lease term expires.