Car Insurance Myths That Cost Drivers Money

This myth has circulated for decades, but auto insurers base rates on factors like the vehicle's make, model, trim level, engine size, safety ratings, and your driving record — not its paint job. What does affect your rate is the car's likelihood of being stolen, its repair costs, and how it performs in crash tests. If you're curious about what actually moves the needle, lesser-known premium factors like your ZIP code and credit score are far more influential than color.

'Full coverage' generally describes a policy that bundles liability, collision, and comprehensive coverage. Collision pays for damage from an accident you're in; comprehensive covers non-collision events like theft, hail, or hitting an animal. But neither covers mechanical failure, wear and tear, or personal items inside the car. There's also a critical gap when a car is totaled: your insurer pays the car's current market value, which may be less than what you still owe on the loan. Gap insurance exists precisely to fill that difference. For a deeper breakdown, see our guide on what each policy type actually covers.

Insurers in most states use a credit-based insurance score — not identical to your standard credit score, but derived from similar data — because research cited by the insurance industry links credit history to claim frequency. A lower score can mean a higher premium in states where this practice is allowed. A handful of states, including California, Hawaii, and Massachusetts, prohibit or restrict this practice. If you're working to improve your financial profile broadly, the same habits that help your credit — paying bills on time, keeping debt manageable — may also help your insurance costs over time. The broader topic of credit myths is worth understanding; our article on credit score myths covers related misconceptions.

Insurers track your claims history, and multiple claims within a short window — even not-at-fault ones in some cases — can lead to a higher renewal premium or even policy non-renewal. Before filing, compare the repair estimate against your deductible and consider the potential rate impact. If the damage is minor and the cost is close to your deductible, paying out of pocket may be the smarter financial move. That said, always document the incident thoroughly in case the situation changes — especially if another driver is involved. Our guide on navigating the claims process walks through how to make that judgment call.

State-mandated minimums vary widely, but they generally represent the least coverage a driver can legally carry, not a realistic assessment of accident costs. A multi-vehicle collision with injuries can generate medical and repair bills that far exceed typical minimum limits. Once the policy limit is exhausted, you may be personally liable for the remainder. Selecting liability limits that reflect your assets and your realistic exposure is worth discussing with a licensed insurance professional. Auto insurance is just one piece of the broader cost picture — see the full cost of car ownership for context on where insurance fits.

The names are counterintuitive for many drivers. Comprehensive handles events outside your control — theft, vandalism, flooding, fire, falling objects, and animal strikes. Collision covers damage resulting from your car hitting another vehicle or a stationary object, regardless of fault. They work differently, carry separate deductibles, and serve distinct purposes. Knowing which is which helps you make a smarter decision about what to carry. Our article on comprehensive vs. collision coverage explains how to weigh the two against your situation.