Widely Believed Auto Insurance Myths That Can Cost You
Red cars aren't charged more, and your credit score does matter. We separate common auto insurance myths from what's actually true.
Photo: SummarizedReads.net | Just Read It! editorial
—— In This Article
Key Takeaways
- Car color, including red, has no effect on your auto insurance premium.
- Your credit-based insurance score is a rating factor in most US states.
- Minimum state liability limits often fall far short of real accident costs.
- Comprehensive coverage covers theft and weather damage, not all accidents.
- Filing a small claim can raise your premium more than paying out of pocket.
Why Auto Insurance Myths Persist
Auto insurance is purchased out of legal necessity, not enthusiasm, which means most drivers never dig into how it actually works. That information gap is fertile ground for myths — some harmless, some genuinely expensive. Believing the wrong things about your policy can mean paying too much, carrying the wrong coverage, or discovering a gap only after a claim is denied.
The myths below are among the most widely repeated. Each one has a measurable impact on real drivers' finances or protection. Understanding them is the first step toward a policy that actually fits your situation. For a deeper look at how premiums are calculated, see the factors that drive your rate up or down.
Myth
Red cars cost more to insure because insurers charge a premium for the color.
Fact
Insurers do not collect vehicle color data and it plays no role in rating algorithms.
This is probably the most durable auto insurance myth in circulation. The reality is straightforward: when you apply for insurance, you provide your VIN, year, make, model, trim, and body type — not the paint color. Insurers use factors like the vehicle's safety ratings, repair costs, theft frequency for that model, and your personal driving history. Color is simply not in the equation.
Myth
Your credit score has nothing to do with your car insurance rate.
Fact
In most US states, insurers use a credit-based insurance score as a rating factor, and it can significantly affect your premium.
A credit-based insurance score is a separate calculation from your standard credit score, but it draws on similar underlying data — payment history, outstanding debt, and length of credit history. Research cited by the FTC has found a statistical correlation between these scores and the likelihood of filing a claim, which is why most states permit their use. California, Hawaii, Massachusetts, and Michigan are notable exceptions that restrict or ban this practice. If you live in a state that allows it, improving your credit profile before shopping for coverage can translate into a lower premium. For a broader look at credit myths, see common credit score misconceptions explained.
Myth
Carrying your state's minimum required liability coverage means you're adequately protected.
Fact
State minimums are legal floors, not financial protection benchmarks — they are often far lower than real-world accident costs.
Many states set liability minimums at levels established years ago that haven't kept pace with medical costs or vehicle repair expenses. A serious accident involving injury, a totaled newer vehicle, or multiple parties can easily produce damages that dwarf a $25,000 or $50,000 liability limit. Once your coverage is exhausted, your personal assets — savings, income, property — are at risk. Minimum coverage satisfies the law, but it does not necessarily protect your financial situation.
[warning_callout]Myth
Comprehensive coverage means everything is covered, no matter what happens.
Fact
Comprehensive coverage is a specific, defined coverage type for non-collision events — it does not cover all possible vehicle damage.
"Comprehensive" is an unfortunately misleading name. This coverage pays for damage caused by events other than a collision — theft, vandalism, fire, hail, flooding, falling objects, and animal strikes. It does not cover collision damage (that requires collision coverage), normal mechanical wear, or damage that falls under another driver's liability. Understanding what each coverage type actually covers prevents the unpleasant surprise of a denied claim.
Myth
You should always file an insurance claim for any damage to your vehicle, no matter how minor.
Fact
Filing small claims can raise your premium at renewal by more than the claim's value, making out-of-pocket payment a smarter choice in many cases.
Insurers track your claim history, and multiple claims within a short period — even for small amounts — can result in a surcharge at renewal or, in some cases, a non-renewal notice. If the damage estimate is close to or below your deductible, paying out of pocket preserves your claims record. A reasonable rule of thumb: consider filing only when the damage significantly exceeds your deductible and you cannot reasonably absorb the cost yourself. Always review your policy's surcharge schedule before deciding.
What These Myths Actually Cost You
Each misconception above carries a financial consequence — either money wasted on unnecessary anxiety, or money lost by making poorly informed decisions. Drivers who assume minimum coverage is sufficient routinely face out-of-pocket liability after serious accidents. Those who believe credit doesn't matter may miss opportunities to improve their score before shopping for a new policy.
~38%
Drivers carrying only minimum liability limits
Industry estimates suggest a significant share of US drivers carry only state-mandated minimum liability coverage, leaving substantial financial exposure after serious accidents.
46 states
States permitting credit-based insurance scoring
As of current regulatory data, the majority of US states allow insurers to use credit-based insurance scores as a rating factor for auto policies.
The coverage valuation myth is particularly worth understanding before you file a claim. How your vehicle's worth is calculated — whether as actual cash value or an agreed value — determines what you receive after a total loss. How agreed value and actual cash value differ can mean thousands of dollars in a payout. Separately, common coverage oversights compound these risks — skipping uninsured motorist coverage or misreporting vehicle use are among the most costly mistakes everyday drivers make.
Reviewing your policy with accurate information — rather than assumptions — puts you in a far stronger position. If your renewal looks unexpectedly higher, the cause is often unrelated to anything you did; understanding why rates shift at renewal can help you respond strategically rather than just accepting the increase.
Your Policy Documents Are the Final Word
What your policy actually covers is defined in the policy contract itself — not by common assumptions or what a neighbor told you. Before assuming you're covered for a specific scenario, read your declarations page and coverage definitions, or call your insurer directly. Surprises at claim time are almost always more expensive than a 20-minute review beforehand.
Auto Editorial Team
Auto Editorial Team is the collective byline for our editorial team and contributor network. Articles published under this byline or an editorial pen name are researched, written, and reviewed according to our editorial standards for clarity, consistency, and independence before publication.
View author profile