Auto Insurance Myths and Realities

Though car insurance is required in 48 states and the District of Columbia, it’s arguably one of the least understood aspects of auto ownership, with many consumers harboring a multitude of misconceptions regarding their policies and premiums. A recent report conducted by Princeton Survey Research Associates International for InsuranceQuotes.com demonstrates just how deeply some misconceptions are ingrained in consumers’ minds. For example, 44 percent of U.S. drivers surveyed wrongly believe the color of a given car affects its insurance rates. No, driving a red car will not mean higher rates, but owning a red-hot sports car will cost you plenty. Among other factors, insurance companies base their rates on vehicle claims histories, including how much damage a given model incurs in a typical crash, the extent of injuries (and fatalities) suffered by occupants and other parties, the cost of damage to other vehicles and property and which models are more frequently stolen. Another popular myth - believed to be true by 44 percent of those queried - is that car insurance won’t cover a claim if the policyholder is at fault. In fact, the “comprehensive and collision” component of a car insurance policy specifically covers the cost of repairs when the driver is at fault or is a victim of circumstances, such as when a tree falls on the vehicle during a storm. Seventeen percent of consumers surveyed were unaware that where they live affects how much they’ll be charged for car insurance. In fact, a person’s address is a major rate-determining factor. Typically, those living in urban areas will pay more for coverage than those residing in the suburbs or rural locations. Population density, accident and theft statistics, the number of uninsured drivers on the road, and whether or not state regulations favor insurance companies all affect what the average driver in a given location will be charged for coverage. At that, an even bigger contributor to insurance rates is a policyholder’s driving history. Young unmarried drivers usually pay the highest rates, and having racked up moving violations and/or at-fault accidents will drive up anyone’s premiums. According to InsuranceQuotes.com, drivers receiving a DUI citation see their rates rise by an average of 92 percent, with reckless driving and speeding at 31 or more mph over the posted limit boosting premiums by an average 83 and 29 percent, respectively. Filing a single bodily injury or property damage claim of $2,000 or more will cause an average motorist’s car insurance premiums to skyrocket by around 41 percent. As for claims, 28 percent of respondents believed that if their cars were “totaled” in a wreck, they’d only receive whatever it would be worth to a junkyard, when in fact they’d be reimbursed for the vehicle’s market value before the crash. Experts say it’s a good idea to purchase gap insurance, which pays off the remaining balance on a car loan should one incur a total loss. The survey also found that 14 percent of drivers are under the false impression that their car insurance will cover the cost of mechanical problems (it won’t). However, some policies include emergency road service, usually at an additional cost, that will at least cover the cost of towing a car to a mechanic in case of a breakdown. Another misconception, believed to be true by 34 percent of drivers queried, is that auto insurance will cover the cost personal property, including phones and radar detectors, stolen from within a vehicle. Rather, an owner’s personal property - whether it’s at home or in the car - is covered by a driver’s homeowner’s or renter’s insurance. “These results indicate that millions of Americans need a refresher on what insurance does and does not cover,” says Laura Adams, InsuranceQuotes.com’s senior analyst.