The 7 Biggest Auto Insurance Myths

Auto-insurance-knoxville-tnI must admit, I was completely ignorant about insurance before I entered the insurance profession. Even though I had a Master’s degree and felt like I was pretty savvy, I was driving around with state minimum limits. I simply did not know any better, and unfortunately for me, I had not found an insurance agent who cared enough to explain coverages to me. Now that I am in the profession, I find the myths that I hear daily quite humorous. As an educator, I find it troubling to see such an uninformed population when it comes to insurance. There are plenty of opinions out there, but the trick is deciphering the myths and getting to the truth. When buying an auto policy, you need to know what specific coverages mean and how they affect you. Let us help you separate myths from facts about auto insurance. Here are seven myths I frequently hear that are false. I’m hoping, “If you know better, you will do better.”

Myth #1

If someone borrows your car, their insurance will cover a wreck or any problem that occurs.

Auto insurance follows the car, not the driver. If you willingly let another person drive your car, you better hope that person is a good driver. If they cause a wreck, you are liable for injuries and physical damages. Your insurance provides the primary coverage, and you could be sued. Only after your insurance reaches its limits will your friend’s policy come into effect. If your friend is not insured, your policy is the only one available. Be very cautious when lending your car to others. If an accident occurs, it will show on your CLUE report, (which will cause your insurance premium to increase) and it will show on the driver’s motor vehicle report. So basically, both of you are penalized.

Myth #2

You’ll pay more for certain car colors.

Many people think if you own a red car, you’re more prone to speed and cause accidents. Now that may have been true in 1984 when I had my little red Mazda RX-7, but this is simply a myth. Red cars statistically do not get pulled over (again, this was debatable when I owned my red car) or cause more accidents than any other color car. No data supports that owners of red cars drive more aggressively or get more speeding tickets than non-red car owners.

Think about it, has an insurance agent ever asked the color of your car when writing your policy? Insurers use other factors such as car make, model, body type, engine size, the age of the vehicle, the car’s sticker price, the cost to repair it, its overall safety record, and the likelihood of theft when setting your insurance rates.

Myth #3

The older your vehicle is, the less premium you need to pay!

According to a recent survey, more than sixty percent of the people with car insurance believe this myth. As more people keep cars for a longer time period, the price of used parts increases. A used car is not necessarily cheaper to insure than a newer car. Now if your car is older, and you drop collision coverage, your premium will be lower.

Other factors such as your coverage choices, your age, the number of miles traveled, and your insurance score may affect your premium payments. The age of your vehicle is only one factor out of the many that affects your premium cost.

Myth #4

Your credit or past driving record doesn’t matter if you switch insurance companies.

Just because an accident or moving violation occurred while you were insured by another company doesn’t mean the incident didn’t happen. I know you would like to forget those accidents and tickets, but you can’t. Auto insurance companies consider past claims as an indicator of future risk. If you’ve filed claims in the past, insurance companies consider you more likely to file a claim in the future. Some companies only look at your last three years driving experience while some look at your past five years of experience. It never ceases to amaze me when prospects tell me they have no driving incidents and then say “I didn’t know you would find that” when our driving record reports show past accidents or traffic tickets. Always be honest with your agent, so you can get accurate numbers on a proposal.

Most companies use a credit-based insurance score derived from your credit history as a factor in your premium. Usually a good insurance score demonstrates how well you manage your financial affairs, and that has shown to be a good predictor of whether someone is more likely to file an insurance claim. With most companies, clients with good credit often end up paying less for insurance.

Myth #5

If your car is damaged, you will receive a claim pay-out exactly equal to the cost of a new car.

This is a huge myth which most people believe because they want to believe it. This myth means the client gets a better deal, but the truth is not even close to this. Make sure you understand your coverage before you sign your final documents.

When you receive your pay-out for your claim, the insurance company’s obligation is to put you in the same financial position you were in before the damage. The company does not want you to make any profit in a claim situation. The cost of your car’s depreciation is taken into account when calculating an auto insurance claim payout to replace your auto.

Many clients don’t understand depreciation and find it unfair, but this is the process followed by the insurance companies. When you sign your insurance contract, you are agreeing to this method of indemnity. If you don’t understand the complex insurance market language, it is better to consult a good insurance professional who will guide you in the proper direction.

When an unlicensed person states facts about insurance, it’s okay to listen to what they say, but don’t rely on it blindly. Be diligent, research and find valid information before you decide on coverage.

Most clients want to buy the Best Car Insurance Policy, but no one wants to make much effort to find it. I can’t tell you how many times I hear, “just give me the price.” This is not how things work! You should take time to get a clear idea of what protection you need. A great insurance professional will explain your policy without insurance jargon.

Buying the wrong policy is a waste of money and can leave you in a vulnerable position. Anything can happen to you, your family member, or your vehicle, and not just any insurance policy will be able to protect you to the maximum extent.

The best advice I can give you is that you shouldn’t believe everything you hear about auto insurance. Instead you should find a great agent who can help you separate fact from fiction. Your decisions regarding auto insurance should always be educated decisions.

Myth #6

“Full coverage” covers everything I need on my auto policy.

I can’t tell you how often I ask a prospect what type of coverage they have, and they tell me “full coverage.” When I hear this, I know they don’t have a clue about what type of coverage they have. “Full coverage” is not a specific coverage offered by insurance companies. There is no car insurance coverage that goes by the name “full coverage.” Most people think of full coverage as a policy that combines state-required liability (to cover bodily injury and property damages to others in an accident you cause), comprehensive, and collision coverage. Let’s define each of those coverages.

Liability Insurance covers the costs for the other party’s injuries and repairs in the event of a covered accident in which you’re at fault.

Collision insurance can cover damage to your vehicle if you are at fault in a collision, but it does not cover the other party’s vehicle or anyone’s bodily injuries.

Comprehensive insurance covers certain damages to your vehicle that are not caused by a collision with another car—for instance, accidents related to weather, theft, fire, etc. That’s not such a bad thing. In 2013, the average comprehensive car insurance claim was $1,621, whereas the average collision claim added up to $3,144, according to the Insurance Information Institute.

Insurance agents don’t hit some full coverage button to give you the coverage you need. While “full coverage”gets tossed around frequently when speaking about car insurance, this well-used term can be interpreted in different ways. However, insurance carriers don’t have a laid out set of guidelines which all comapanies follow. Do you know what “full coverage” means? It may not be as cut and dry as you think. Instead of using the term full coverage, be specific when selecting your auto coverage.

These important coverages are NOT included in “full coverage.”

Myth #7

Every auto insurer will give you a similar proposal.

While most auto insurers check your credit and claims histories, each company weighs risk differently. I have five different companies, and they each rate with different factors. I tell my clients it’s like taking four of your friends to a candy store; everyone picks the candy they want. Insurance companies do the same thing. So only getting a proposal from one company is really a disservice to you. Some insurers care more about the number of miles you drive; others charge more for a more dangerous model. Plus, each company has different discounts available. If you talk with an independent agent, they can give you several choices. Shop your policy to find out where you can get the best package for you for the right price, but price should not be the ONLY consideration.

Changing auto insurance companies does not have to be irritating and time-consuming. With technological advances, changing insurance can be an easy process. As you can tell, there are a lot of wrong thoughts about insurance for your auto. Take the time to get correct information before you choose your coverage.