8 Car Insurance Myths Debunked

Unhappy Female Driver With Damaged Car After Accident Calling Insurance Company On Mobile Phone

Are red cars really more expensive to insure? Will your insurance premiums automatically go up if you get a traffic ticket? There are lots of myths out there about car insurance—and falling for them could have costly consequences. Let's examine eight of the most common car insurance myths to uncover the realities.

Myth: Your insurance premiums go up when you get a traffic ticket

A traffic ticket in and of itself won't necessarily cause your car insurance premiums to rise. Moving violations that reflect unsafe driving, such as excessive speeding or driving under the influence of drugs or alcohol, are likely to push your premiums higher. However, minor moving violations may not affect your insurance rates at all, as long as your driving record is otherwise clean.

That doesn't mean you can start rolling through stop signs or texting as you soar down the freeway. If moving violations—even for small offenses—begin to add up, your car insurance company is likely to take a closer look at your rates. Some states let you remove a violation from your record by taking a driver safety class. If you do get a ticket, see if you can clear your record that way.

Myth: If you get in an accident, your premiums automatically rise

Your insurance costs won't always rise after you file a claim for a car accident. Several factors affect the outcome, including whether the accident involved another driver or just an object (like a tree), whether you are determined to be at fault, the size of the claim and whether the claim involves damage to vehicles or injuries to people. Insurers will also look at your driving record and your prior insurance claims to see if they detect a pattern of unsafe driving.

If you're involved in a three-car pileup in which your car is totaled, you're found to be at fault, and four people in the other cars are hospitalized, chances are your premiums will increase. But if you back into a light pole in a parking lot or rip off your car's rear bumper and suffer no injuries, you may not see any increase at all.

No matter how minor the accident, you should always file a report if another party is involved. Sure, the other driver might seem fine at the scene of the crash, but what if they decide to sue you six months later? Without an accident report, your insurance company will have trouble proving you're not at fault. In the worst-case scenario, the insurer might not honor your claim.

Myth: It costs more to insure a leased car

If you own your car outright, how much insurance coverage you get is generally up to you; you just have to meet any minimum coverage requirements set by your state. When you lease a car, however, the lessor owns the car. To protect their asset, they'll insist you get collision and comprehensive coverage, which pays to repair or replace the car in case of collision or damage.

Adding comprehensive and collision coverage costs more than having just the basic, state-mandated insurance, but you might have to carry it even if you don't lease. If you finance a car, the lender will require it while you're paying off your loan. And most drivers generally get collision and comprehensive coverage anyway to protect their vehicles.

Leased cars generally cost more to insure than older cars simply because they are newer and worth more. But whether you are financing or leasing a 2020 Mazda CX-5, the insurance premiums should be similar. If you buy the car outright and decide you don't want comprehensive or collision coverage, your insurance will cost less—but you'll shoulder the cost of repairing or replacing the car yourself if you have an accident or other event.

Myth: Red cars cost more to insure

The color of your car has no bearing on your auto insurance premiums. When a car insurance company gives you a quote or issues a policy, they will generally ask for information such as make, model, year and vehicle identification number (VIN). None of that information tells them your car color.

There's one exception: If you have a fender-bender in a vehicle with a customized paint job, it will cost more to repaint than a stock color. Getting customized vehicle coverage for aftermarket features, such as the candy-apple red metallic paint on your classic Ford Mustang, does cost a little extra.

While owning a red car doesn't automatically equate to higher insurance rates, if you treat the road like it's your own personal raceway, you could end up with speeding violations that could spike your premiums. Some theorize that red cars are more visible by police on the road, and therefore more likely to get tickets compared with cars that blend into the background.

Myth: If someone borrows my car and has an accident, their insurance will cover it

It might—and it might not. In general, if the driver of your car isn't at fault, the other driver's insurance is responsible. If the driver of your car is at fault, your insurance company may ask their insurer to pay the costs—but if they don't have insurance or don't have enough insurance, your insurer might have to step in. If you do file a claim, it will go on your driving record even though you weren't driving, which can increase your premiums.

Whether your auto insurance covers someone else driving your car depends on many factors, including where you live, the details of your policy, who is at fault in the accident, and whether the person who borrowed your car has their own insurance. Insurance policies differ from state to state, and your policy may have exclusions or limitations.

To make sure you're protected when lending someone your car, carefully review your insurance policy and, if you're still unsure, ask your insurance agent. Getting umbrella insurance is a good way to protect yourself in situations where your car insurance coverage doesn't cover the costs of an accident.

Myth: Adding high-tech safety features to your car will lower your premiums

Driver safety features such as blind spot monitoring systems, lane departure warning systems and backup cameras can help reduce the risk of car accidents. But do they reduce your car insurance rates too? Actually, vehicles with these features may cost more to insure, because high-tech safety features often involve delicate sensors that are expensive to repair. For example, the Highway Loss Data Institute reports that repairing a front bumper with a forward collision warning system increases the cost of a collision claim by about 2%.

Anti-theft equipment or GPS systems that can help recover a stolen car may be more likely to reduce your car insurance rates. For example, Geico offers premium discounts of up to 25% for cars with anti-theft devices. That doesn't mean you should skip the high-tech new car in favor of a used Yugo with a LoJack. Today's high-tech safety features can help reduce the risk of accidents and injury, which could save you a lot more than money.

Myth: If your car is totaled in an accident, your insurance will pay off your auto loan or lease.

Insurance pays out based on the value of your car as determined by the insurer. Because cars start to depreciate in value as soon as they're purchased, it's possible to owe more on your car loan or lease than the car is actually worth. For example, suppose your car that's valued at $10,000 is totaled—but you still owe $12,000 on the loan. Subtracting your $500 deductible, the insurer pays you $9,500. The car may be gone, but the lender will still hold you responsible for the remaining $2,500 of the loan.

Making a down payment of 20% or more will generally prevent owing more on your car than it's worth, known as being "upside down" on your loan. If you're already upside down and would have trouble coming up with enough money to cover the difference between the loan balance and your car's value, consider buying gap insurance. This covers the "gap" between the loan amount and the value of the car and is usually very affordable. If you lease your car, the lessor might require you to have gap insurance, or might roll it into your lease costs.

Myth: Your credit has no effect on your insurance rate

Unless you live in California, Hawaii or Massachusetts, where the practice is illegal, most car insurance companies use a credit-based insurance score to help determine your premiums. A law in Michigan recently banned the use of credit scores in determining rates there. A credit-based insurance score is different from your FICO® Score , but the two scores are generally closely related. So if you have a poor credit score, you could have a poor credit-based insurance score as well. This could mean you'll pay more for car insurance.

Before you go shopping for car insurance, it's wise to check your credit score so you can take steps to improve it if necessary. Paying your bills on time and reducing your debt are among the best ways to raise your credit score. A higher credit score could lower your car insurance premiums—and that's no myth.

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