Car Insurance Myths That Cost Drivers Real Money

Insurers base premiums on factors like your driving record, location, vehicle make and model, engine size, safety ratings, theft rates, and — in most states — your credit history. Color is not collected on an insurance application. The myth likely persists because red sports cars are associated with aggressive driving, but it's the vehicle type and driver profile that drive the cost, not the paint.

Many states set minimum liability limits that were established years ago and haven't kept pace with medical costs or vehicle values. If your liability limit is $25,000 per person and the other driver's medical bills reach $80,000, you may be personally responsible for the remaining $55,000. Wages can be garnished and assets seized to satisfy a civil judgment. For a fuller picture of what each coverage type actually does, see our plain-language coverage guide.

A credit-based insurance score is not identical to a FICO score, but it's built from similar data: payment history, outstanding debt, and length of credit history. Drivers with lower scores statistically file more claims, so insurers price accordingly in states where the practice is permitted. A handful of states — including California, Hawaii, and Massachusetts — prohibit the use of credit data for auto insurance pricing. Understanding how credit myths overlap with financial products is covered in our guide to credit score misconceptions.

Insurance is most valuable as protection against large, financially devastating losses. For a small fender dent or a cracked bumper, consider getting a repair estimate first. If the cost is only slightly above your deductible, paying out of pocket may be the smarter financial move. A claim on your record can raise your premium at renewal, and that increase can persist for three to five years depending on your insurer and state.

Comprehensive coverage pays for damage caused by theft, weather, falling objects, fire, vandalism, and animal strikes. It does not pay for damage from colliding with another vehicle or a fixed object — that's collision coverage. Neither replaces liability coverage. Carrying both comprehensive and collision is sometimes called full coverage, but that informal term has no legal definition and doesn't mean all losses are covered. If you're weighing whether to keep both on an older vehicle, this breakdown on coverage for older cars can help.

This distinction matters enormously. If a friend borrows your car and causes a serious accident, your liability coverage pays first. If damages exceed your limits, your friend's insurance may act as secondary coverage — but your policy absorbs the initial financial hit and you may face a premium increase. Lending your vehicle to someone without a license or with a suspended license can also give your insurer grounds to deny the claim entirely.