Seven Car Insurance Myths You Need To Know

by Hank Coleman

There are many car insurance myths.There are a lot of car insurance myths that continue to be spread around by consumers. One of the biggest reasons for car insurance myths is that you do not exactly know how your car insurance is calculated by your insurance company. These calculations are a closely guarded secret by most car insurance companies, but there are a few clues as to what makes our car insurance rates rise.

It is important when you compare car insurance rates to understand as much as you can about how your car insurance rates are calculated and to debunk the popular car insurance myths in order to ensure that you are saving money on car insurance as much as possible.

There are many car insurance calculators on the internet that can help you find the best prices for a policy. Green Slip Calculator can help you find the lowest available prices for greenslip insurers based on your vehicle and details instead of car insurance myths.

The Color Of Your Car Does Not Matter

The color of your car does not affect the price you way for your car insurance premium. This is one of the most popular car insurance myths that continue to circulate throughout the country and across generations. But, the fact of the matter is that car insurance companies do not car what color your car is when they calculate your car insurance premiums. There are many many auto insurance leads that you can check out to compare insurance premiums. Red cars do not equate to a higher insurance rate simply for the fact of being red. Car insurance companies care about their historical data on the likelihood that your make, model, and year of car will be damaged. They care about your history of driving and the likelihood that they will have to payout a claim against your policy more than anything else when determining the price they will charge you for your insurance premium.

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Sports Car Drivers Do Not Automatically Have Higher Car Insurance

Owning a sports car does not automatically equate to having higher car insurance. Studies have shown that there are many other types of car classes, certain makes, and models that are much more costly to insure than sports cars.

Car insurance companies set car insurance premiums based on the cost and likelihood of a claim based on each individual person and the type of car insured. Some cars have historically higher repair costs and higher replacement parts costs that can significantly increase the cost of their insurance premiums.

You Are Responsible Even If Your Friend Is Driving

For most car insurance policies, the insurance policy remains with the vehicle and not the driver. So, if you allow your friend or someone else to drive your car, you and your insurance company could still be still responsible to pay for any damages or injuries from an accident.

Once your insurance policy has been maxed out, you may be able to tap into the driver’s insurance policy in the event of an accident with a lot of damage and loss. Do not make the mistake in believing the car insurance myth that you are not responsible when you loan your vehicle to someone. You and your car insurance could still be on the hook.

I’m Covered If My Car Is Totaled

Your car may not be completely covered by enough insurance to pay off your loan if it is totaled. Often borrowers roll old car loans into new car loans, and most new cars depreciate significantly as soon as you drive it off of the car lot. This can create a gap between the true value of the car and the amount of money that you owe the bank on your car loan.

Almost all car insurance policies have a clause that they will only payout the cost of your vehicle. They will not pay the amount of your loan balance if your car is worth significantly less. You need gap insurance which is a separate and specific type of car insurance used just for this purpose. Gap insurance covers that gap between the amount your car insurance will payout and the rest of your loan balance on the car.

My Car Insurance Covers My Rental Car

You need to check with your car insurance company before you rent a car to ensure that you have the proper car insurance clauses that cover rental cars on your insurance policy. Not all policies cover rental cars. It is not an automatic entitlement. You need to have it added to your current car insurance policy, and typically this is a very inexpensive provision to add to your policy.

Items In Your Car May Not Be Covered

You may find that your personal property, like a laptop or cell phone, may not be covered under your car insurance policy. These types of items are typically excluded from your car insurance policy, and claims must be filed under your homeowner’s insurance or renter’s insurance. This may not be very cost effective though depending on your homeowner’s insurance deductible which often tends to be higher than a simple car insurance policy’s deductible.

You Can Use Your Personal Car Insurance For Business

You must have a separate business car insurance policy for your automobile if you use your car for business purposes. Your personal car insurance policy does not cover your car if you are using it for business related activities. You need separate personal and business car insurance policies in order to be fully covered. Also, most business loans have clauses that you carry the proper insurance coverage for commercial car insurance and not just a personal policy.

Car insurance companies care about their historical data on the likelihood that your make, model, and year of car will be damaged. They care about your history of driving and the likelihood that they will have to payout a claim against your policy more than anything else when determining the price they will charge you for your insurance premium.

Everything else is a car insurance myth that continues to circulate through society. Knowing as much as you can about these car insurance myths and how insurance is actually calculated will help arm you with the information you need to save more money on car insurance.

About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and is currently pursuing his Certified Financial Planner credentials. Email him directly at Hank[at]

Hank Coleman has written 525 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.

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{ 42 comments… read them below or add one }

Eric J. Nisall - DollarVersity

The red car theory is one of the funny ones to me, although I’ve never heard of it being referenced with insurance issues. It mostly has been applied to the likelihood of receiving a speeding ticket from the things I’ve heard.

Getting a separate business policy is really important too. It also works in reverse, if there is an accident and you are using a company car outside of the scope of the business. In that case, the corporate veil can be pierced (since the activity was not business related) and the driver can be held personally liable for damages and open to a lawsuit.
Eric J. Nisall – DollarVersity recently posted..Create Loyal Customers With These 5 Customer Retention TipsMy Profile



The myth is that a red car will attract attention and earn you more speeding tickets. More speeding tickets = high interest, so the myth is that car insurance companies automatically start red car owners’ insurance rates higher than others when all other characteristics are the same.
Hank recently posted..A Selection Of Articles Written This WeekMy Profile


Edward Antrobus

Don’t forget credit score. Some jerk, somewhere along the way, decided that having poor credit increases your likelihood of being a bad driver. When NJ started allowing car insurance companies to take credit score into account when deciding premiums, my parents premiums went up by something like 20%. It was a substantial increase. My parents have horrible credit. But in their combined 73 years of driving history, the only claim ever made was the accident my mother had on the first day of having her permit…in 1974.
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Hack - Smart Money Hacks

Great reminders Hank. In college my friend had a lawn mowing business and had to buy separate insurance on his truck. Those costs need to be considered for sure when thinking about business insurance for your vehicles.
Hack – Smart Money Hacks recently posted..2012 Roth IRA Contribution LimitsMy Profile



That’s very true. A lot of people forget about business insurance when they have a small side business.
Hank recently posted..A Selection Of Articles Written This WeekMy Profile



I never got the one with the color of the car. That made no sense to me at all. The type/cost of vehicle matters and where you garage the vehicle, not color. Maybe the weird statistic came from all the people getting red luxury super cars and skewing the stats.
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Shaun @ Smart Family Finance

Usually the myths I hear about car insurance involve things that lower your premiums that don’t really lower your premiums. Like having children.
Shaun @ Smart Family Finance recently posted..Comment on Teaching Your Children Good Money Habits from the Beginning by LouiseMy Profile



That’s a great point too, Shaun. There are several car insurance myths like that one where people think that they will receive a discount because of some factor but won’t.
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Miss T @ Prairie Eco-Thrifter

Where I live colour and brand of car do matter when it comes to prices. There are certain cars which are stolen more often and targeted and this is factored into your insurance premiums.
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Miss T,

The brand (make & model) absolutely matter as I mentioned above. Color does not.
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Marie at Family Money Values

Using credit scores to determine car insurance rates is just wrong!
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It is a small portion of the formula, but car insurance companies use it because it is an accurate barameter unfortunately for future claims. It is a great wake up call to many that there are far reaching affects to not maintaining good credit. Using it to accurately reflect rates also keeps the premium costs down for the rest of us drivers as well.
Hank recently posted..A Selection Of Articles Written This WeekMy Profile



Hi Hanks,

There are several things that go into calculating car insurance premiums, like brand and model of the car, manufacturing year, driving habits and records of the said driver, etc. Yes there are also some considerations on some vehicles that are more prone to theft. The most unfortunate calculation however is credit score, which I suppose is not necessary as there are several people who have low credit score but have excellent driving record. Keeping good credit is good but calculating car insurance premium on it is wrong.
David recently insurance san joseMy Profile


Dave Madden

It is important to know what really matters and true when having car insurance. The best thing to consider when you want to know more about car insurance is to ask advice to professional person that handles this kind of field. They probably know the answers in your questions and other problems that you may encounter. Research is also another option which I found in your article. This is another way for knowing information and opinions from other people that encounters the same problem you are encountering.



I have recently purchase a new car and want to get insurance policy therefore your Car Insurance Myths are very helpful for me.Thanks for providing us this information.Hope you will update us from such type of helpful information in future.



Sure sports cars typically do not have high insurance, however, the rates are going to higher than average if the vehicle can go fairly fast. I think there is a slight confusion between a sports or sporty looking car and a vehicle which has a V-8 under the hood and over 450 horsepower.
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Wish the owners of pizza companies were responsible and made sure their delivery drivers have coverage. Idiot pizza deliver driver backed into my parked car and took off. When I called the police and they tracked the delivery driver with his damaged vehicle down, he did get a ticket, but had no coverage because he was using his car for “business” and MY INSURER had to cover the damage. I was OUT my deductible and told to sue the driver in small claims court. What a hassle and not worth the expense of doing that. I shouldn’t have HAD to!


Hank Coleman

Maybe one of the problems is that most of us do not sue because it is time consuming, but we are also letting these people who do not have the proper car insurance off the hook by not doing so. You may be able to look into suing the pizza business as well instead of just the driver.
Hank Coleman recently posted..The Simple Truth on How to Get the Lowest Interest Rate on a Car LoanMy Profile



definitely just like your web site nevertheless, you have to take apple iphone 4 spelling in several of the articles you write. A number of choices rife together with punctuation difficulties and i also in finding the item pretty disturbing in truth nevertheless I’ll certainly come once again just as before.



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Evelyn Dixon

We buy insurance whether it is for us or for our things, so we need to be focused for the right rules and responsibilities for our vehicle and it should be in our budget. That’s the reason we need insurance to avoid the expenses and get a right cover of loss for our vehicle.


Kelly T

Ah yes the never ending myths about what affects the prices of auto insurance policies. Great write up by the way.

One of the main things that affects our clients policy prices are the zip code of their home address.

Being in a major city “Louisville KY” we have our safe areas, then we have areas of the city that are a bit rougher with more crime. Our clients that live in the high crime areas sometimes see prices that are almost double than another client living only 3-4 miles away in a low crime area. All of this is calculated by the carriers via zip code.

We’re constantly asked about this, but our hands are tied. Living in a “bad zip code” can and does make a huge difference in the price of auto insurance. And beyond moving, there’s not much that can be done about it. Some people try to skirt it by using a family members address. But this can lead to some serious problems if there’s ever a claim. Insurance fraud is not a pretty thing.


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