Car insurance: Myths and misconceptions
In an ideal world, car insurance would be straightforward and everyone would understand exactly how it works. Unfortunately, that's not the way it is. Auto policies these days make the Magna Carta seem like light reading. Making matters worse is a flood of misinformation drowning out the facts and forcing drivers to figure out what is fact and what is fiction. Let's set the record straight.
Here are 15 of the most common car insurance myths and misconceptions dispelled and debunked:
Truth: The color of your car has no bearing on your rate. Red, yellow, purple, zebra-striped, it makes no difference.
Truth: Rental and towing coverage are individual riders that are generally added on separately and carry additional costs.
Truth: There's a lot more to your rate than your record. Other factors include your age, type of car (typically, the better the crash-test score, the better your rate), the intended use of your car and theft rate in your area (urban areas or "port" cities usually have higher theft rates than do rural areas). Also, if you are a student, good grades can help reduce your premiums. Even your credit history can play a part in the overall evaluation.
Truth: No. Comprehensive coverage pays for damage to your car that is not the result of a car accident. This includes such things as theft, vandalism, hail, fire and flood. But trouble with your transmission is on you.
Truth: Remaining ticket- and accident-free will help lower your rate over time, but other factors can keep that rate where it is or even make it go up. These include national and regional trends like the increasing costs to repair vehicles, rising hospital bills and more lawsuits.
Truth: Some newer cars are less expensive to insure than older ones are. It depends on the year, make and model. Check around.
Truth: This depends on your coverage. For collision and comprehensive coverage, this is often not the case because smaller cars typically sustain more damage in an accident and have a higher rate of being "totaled" in a collision.
Truth: Your insurance policy likely won't be important to you until you need to make a claim. Should you have a claim and find that you don't have the proper coverage, you may have to come up with the money out of your own pocket, and that could cost you far more than the savings you realized by purchasing a policy online. A good insurance agent can help you analyze your current policy and make recommendations so you have the best experience possible when you have to use your insurance.
Additionally, many major brick-and-mortar insurers offer discounts that can be overlooked sometimes in an online purchase.
Truth: "No-fault insurance" simply means that your own insurance company pays for your injury-related bills, regardless of who is at fault.
Truth: Your insurance company will determine whether your car should be totaled. A total loss is declared when the repair costs exceed a certain threshold of the car's present value. That generally falls between 50 percent and 70 percent, depending on the insurance company.
Truth: When your car is totaled, your insurer will pay you the actual value of your car (before the accident), minus your deductible. You are still responsible to your lending institution for any amount outstanding on the loan or lease. The only way to cover the difference between the car's actual value and the amount you owe on the loan is to purchase gap insurance.
Truth: Unless you have comprehensive coverage, you are not covered for these things. A bare-bones policy in most states is liability-only and will only cover damage you cause to others' cars. If you want to fully protect your vehicle from damage due to accidents, weather, crime and acts of God, you should have collision and comprehensive coverage.
Truth: It's actually the other way around. Statistics indicate that thieves actually tend to steal older cars. There are two primary reasons: 1) They are easier to steal and 2) They're more valuable on the used-car-parts market, which is particularly strong, especially in a down economy.
Truth: Generally, it's your homeowners or renters policy that protects anything stolen from your car.
Truth: Not necessarily. A lot of other factors determine premiums. (A 35-year-old Corvette owner with a good driving record will probably pay less in premium than a 24-year-old Scion tC driver with points against his record.) According to a recent study by Quality Planning, a solutions consultant for automobile insurers, nine of the top 10 cars with the most traffic violations were non-performance models.
