Have you ever heard someone say red cars cost more to insure? It sounds believable, but that’s just one example of an auto insurance myth we hear all the time.
With the advent of the internet, there’s no shortage of good information out there about auto insurance. Unfortunately, there’s a lot of bad information mixed up with the good. Let’s sift fact from fiction as we discuss and dispel some common auto insurance myths.
- Your credit score doesn’t affect your auto insurance premium
Most insurance companies today still use your credit score as a major factor in determining your “auto insurance score.” Your auto insurance score is a 3-digit number similar to a credit score that is derived from data in your credit report. Auto insurance scores help insurers predict the likelihood you’ll file an accident claim.
Insurance companies look at the age of your credit history, the number of accounts you have, your payment history, and your available credit when determining your auto insurance score. Because credit scores exhibit how well you handle your financial affairs, auto insurance companies look at credit scores via auto insurance scores to predict and assess potential risk.
But your credit score is just one of several ways your auto insurance company determines your monthly premium. Insurance companies also factor in your age, gender, location, occupation, and the type of vehicle you drive when calculating your rate.
Insurance companies use predictive analytics and statistical data science to evaluate how risky you are to insure overall. If you live in a big city, have a dangerous job, have a bad driving record, or are a new driver, you will statistically cost more to insure.
Three states have made it illegal for insurance companies to use credit scores to determine rates: California, Hawaii and Massachusetts. On average, drivers with good credit scores (823 or higher) save about $1,130 per year depending on their insurance company.
In Michigan, New Jersey, Texas, Arizona, and Utah, drivers with bad credit scores can get rates anywhere from 90% – 167% worse than drivers with good credit scores.
2. You only need to buy the minimum amount of insurance required by law
Almost every state legally requires vehicle owners to purchase a minimum amount of liability insurance and collision insurance. Only two states do not require vehicle owners to purchase insurance: Virginia and New Hampshire.
In California, you are required to buy a minimum amount of $15,000 per person, $30,000 per accident minimum bodily injury liability coverage, $5,000 minimum property damage liability coverage, $15,000 per person, $30,000 per accident minimum uninsured motorist property damage coverage, and $3,500 minimum uninsured motorist injury liability coverage.
If you get into an accident that exceeds the minimum amount of coverage, you’ll have to pay the costs out of pocket. The costs of even a minor accident can be extreme when you factor in loss of income and medical expenses.
Car accidents cost the U.S. $230.6 billion every year, and a severe accident can cost drivers up to $500,0000. Every state has different requirements, so it’s important to check your state’s requirements before buying a policy.
Many drivers think it’s financially savvy to buy the minimum amount of insurance their state legally requires. But in the event of an accident, the costs associated with medical expenses, loss of income, and vehicle damage can well exceed the amount you’d spend on the extra insurance coverage.
3. My insurance coverage insurance covers theft, vandalism, and weather-related damage
Let’s say you park your car on a tree-lined street. Suddenly, a branch falls and crushes your windshield. Unless you have comprehensive coverage, your insurance won’t pay for that damage.
Comprehensive coverage pays for all non-collision damage. This includes damage from fire, animals, weather, theft, or vandalism. Collision coverage only applies to accidents involving other vehicles.
Most drivers mistakenly think their collision coverage applies to any type of damage, including medical expenses. In fact, you need a combination of injury liability, property damage liability, collision and comprehensive coverage to protect you from different types of damage. If you hit another car, you need collision coverage. If your car gets attacked by raccoons, you need comprehensive coverage.
4. My regular insurance covers me if I use my car for ridesharing
Typically, your insurance company won’t cover you if you get into an accident while using your car to work for Uber, Lyft, or any other ridesharing platform. This is also true if you use your vehicle for delivery services like Doordash or Uber Eats.
Typically, a personal insurance policy won’t cover bodily or property damage if you are driving for a ride sharing platform, though some policies do include this type of coverage. Alternatively, you can purchase rideshare insurance and add it to your personal policy.
Large ride sharing companies usually have master insurance policies to deal with any accidents you might get in on the job, so it’s important you review your employer’s own insurance policies regarding employee accidents.
5. The more expensive your car is, the more it costs to insure
Insurance companies don’t look at the sales price of a car when determining how much you pay to insure it. Instead, they look at what’s called “loss history report,“ which shows how many claims have been made on that model and how much it would cost to replace or repair in an accident. A mid-priced sports car with a high loss history might cost more to insure than a luxury SUV with a low loss history.
People also mistakenly think that thieves prefer to steal newer, more expensive cars. In fact, the opposite is true. Thieves typically tend to stick to cars that have a high demand for parts. According to the National Insurance Crime Bureau, the most popular stolen car in the U.S. is the 1998 Honda Civic. Even thieves want something reliable!
Sadly, your insurance can’t buy you a new car if you total your old one or replace your laptop if it gets stolen from your back seat. But it can help you avoid the worst-case scenarios in life. If you’re misinformed about your coverage you won’t know when your insurance policy can help you most.
Ask your insurance broker what kind of coverage is right for you and always compare insurance policies before buying. We here at FrontLight want to keep you in the know and up to speed, so you can speed up on your road knowing that wherever it leads you, we’ll light the way.