6 common auto insurance myths to avoid
We debunk six common auto insurance myths so you can make sure you’re protected on and off the roads and make smart choices about your insurance options.
What you don’t know about auto insurance could hurt your rates.
Myth # 1: Red cars are more expensive to insure
Your car counts toward the amount you’ll pay for auto insurance, but its color doesn’t affect your rates. Instead, insurers take into account things like postcode, security features, etc.
What insurers consider:
In other words, a red station wagon may be cheaper to insure than a glitzy red convertible.
Myth # 2: Comprehensive insurance covers everything
Don’t be fooled by the word “comprehensive” when it comes to insurance. Comprehensive insurance does not mean that it offers total coverage. Instead, comprehensive auto insurance is sometimes referred to as “non-collision” insurance. It can cover damage such as fire, vandalism, hitting a deer, theft or falling objects.
Rather than equating full coverage to full coverage, consider that maximum auto insurance requires a few different coverage options.
The general rule of thumb is:
- Full coverage can pay for car repairs when the damage is not accident related.
- Collision coverage can pay for car repairs after an accident.
- Liability insurance pays the expenses when you cause an accident.
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Myth # 3: You just have to worry about auto insurance for you and your household
Uninsured motorists are a big problem on the roads. If an uninsured driver causes an accident and damages you and your car, you could be forced to pay the resulting medical bills and car repairs.
Laws vary from state to state for coverage for uninsured and underinsured motorists, and some states require this type of insurance. Check your insurance options and know what coverage you need, including personal injury and property damage coverage.
Policies generally cover hit-and-run accidents where the offender cannot be identified.
If someone is borrowing your vehicle, check to see if your insurance covers this type of instance.
Myth # 4: Short Term Auto Insurance Coverage Doesn’t Matter
Your personal auto insurance rates can be significantly affected by a lapse in auto insurance coverage. Whether you accidentally let your insurance expire or voluntarily canceled the plan for a short time, the result is that you will likely pay more when you re-subscribe.
Many insurance companies have a grace period, so you can avoid penalties if you are in this window. However, if your lapse extends beyond the grace period, you will be classified as a high risk driver and there could be financial consequences.
You might face several situations where you might not drive for a while. For example, you cannot drive after surgery, be deployed overseas, travel for an extended period, or move to a city where you will be using public transportation. It is generally a better financial choice to keep your car at a minimum insured than to leave it parked and uninsured.
Check with your insurance agent to compare the numbers for your situation.
Myth # 5: You don’t have to worry about car payments after your car is destroyed in an accident
Another common auto insurance myth is that you don’t have to worry about car payments. You are not necessarily free and released from your loan payments even after you stop driving the car. Insurers only determine your financial impact after you finalize assessments and compare balances.
Once insurance companies have totaled a vehicle, you could receive payments for full or collision coverage. Your insurance adjuster will determine the amount calculated from the current value of the car less your deductible. The problem is that vehicles can depreciate quickly, so if you owe $ 15,000 on a loan, the insurer can say the car is worth less after the accident.
According to the Insurance Information Institute, a reduced impairment loss may or may not be covered. Because states regulate insurance, it also depends on where you live. For example, if you live in Georgia, the laws require insurers to pay the difference.
If your condition and insurance do not cover the difference in value, you may want to consider loan or lease coverage. Also, some lenders will require it if you have financed your car, so check your policy.
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Myth # 6: Your finances don’t impact insurance costs
Similar to a financial credit score, the insurance industry uses a credit-based insurance score to determine your auto insurance rates, according to the Insurance Information Institute.
Insurers establish scores using information from your credit history, including whether you pay your bills on time, your unpaid debt, and the length of your credit history. Your insurance score does not take into account your income, age, gender or any other discriminatory category. Instead, insurers focus on models of financial behavior to predict which drivers are at higher risk and are more likely to file a claim.
Not all states allow your credit history to influence your auto insurance rates. Check with your insurance agent to learn about the policies in your state and determine which insurers work best for people with low credit scores or for those without credit.