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Six Common Car Insurance Myths

There are a number of urban myths that have been perpetuated over the years about car insurance. How they got started or why they are so common among consumers is anybody’s guess. Believing false information can lead you to buy insurance coverage that isn’t right for you, and this can cost you money in the long run.

Below are 6 of the most commonly circulated myths about auto insurance.

Buying from a Dedicated Agent is Best

The Myth: The best way to get a low rate is to purchase insurance from a dedicated car insurance agent who works for an insurance carrier.

The Truth: The more insurance companies you get quotes from, the more likely you are to get a low rate. If you wish to speak with a dedicated agent, make sure that you speak with agents at several different companies to find the best rates. When looking to buy the cheapest and best car insurance for you, either do your own comparison-shopping or use an independent insurance agent who deals with many highly rated insurance companies.

Insuring a Red Car Costs More

The Myth: Red cars are more expensive to insure.

The Truth: The color of your vehicle has no impact on your car insurance premium. Auto insurance rates are generally determined by the following:

  • Your car’s:
    • Make.
    • Model.
    • Engine size.
    • Body type.
    • Age.
  • Driver age.
  • Your driving record.
  • Your credit history.

Other factors that go into your insurance rate calculations are the car’s sticker price, repair costs, safety record, and how often popular it is with car thieves.

You Can Keep Your Rates from Rising by Not Reporting an Accident

The Myth: By not filing a claim with your car insurance company, you can keep them from finding out about the accident, and your rates will stay where they are.

The Truth: If you get into an accident with another driver, that driver may file a claim for damages or injuries. If they do, it will only be a short time until the injured party's insurance company files a claim against you and your insurance company. Once this happens, your premiums may increase.

Additionally, if you were issued a ticket as a result of the crash, it can appear on your driving record and trigger a premium increase.

Your Insurance Company Will Pay Your Loan if Your Car Is Totaled

The Myth: Your auto insurance company will pay off your car loan in full if your car is a total loss due to an accident.

The Truth: The purpose of auto insurance is to pay off the fair market value of your car.

Fair market value is the original cost of your car, less depreciation. In many cases, this amount is less than the balance of your car loan; you, as the owner, are responsible for the difference.

Example: Suppose you bought a car for $25,000 and it is a total loss due to an accident.

  • You owe $19,000 on your loan, but fair market value is $16,500.
  • Insurance only pays the current value of $16,500.
  • Without GAP insurance, you are responsible for the difference: $2,500.

Many insurance companies offer GAP coverage to help cover the difference between the fair market value of the car and the loan balance. If you have a current loan, you may wish to look into purchasing this coverage type.

Your Premiums Rise as You Age

The Myth: Older drivers are more likely to get into a crash due to poor eyesight and slowed reflexes, so insurance companies set higher car insurance rates for these drivers.

The Truth: Just the opposite is frequently true. Drivers over age 55 may qualify for reduced car insurance rates, as most insurance companies offer a discount on auto insurance to mature drivers who complete a safe driving course.

Car insurance discounts do vary by insurance company, so check with your carrier.

Credit Ratings Don’t Determine Premiums

The Myth: Your credit cannot be viewed by your insurance company or used as a factor in determining your premiums.

The Truth: Most states allow insurance companies to use your credit history to set your rates.

In states where it’s allowed, your insurance company will give you a credit-based insurance score, which serves as an indicator of how likely you are to pay off a loan on time.

Some insurance companies believe your credit-based insurance score is also a good indicator of your accident risk. Those with better scores are often seen as less likely to get into an accident.

The most important factor in getting cheap car insurance is driving safely and maintaining a clean driving record.

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