Common Car Insurance Beliefs That Can Cost You Money

This is one of the most durable myths in auto insurance, but no major US insurer uses color as a rating factor. What does matter includes the vehicle's year, body style, engine size, safety ratings, theft statistics for that model, and the driver's history. A red sports car may carry a higher premium than a red sedan — but only because of the car type, not the color.

Most people use "full coverage" to mean a policy that bundles liability, collision, and comprehensive — but each of those components has its own coverage limit and deductible. Floods caused by a storm may be covered under comprehensive; flooding from a backed-up drain may not be. Mechanical breakdowns are almost never covered. Custom equipment, rideshare activity, and intentional damage are common exclusions. Assuming you're fully protected without reading the policy language is a costly mistake. See how the gap between full and minimum coverage actually works for a clearer picture.

If you drive for a rideshare service and are in an accident while the app is active but no passenger is aboard, your personal insurer may deny the claim — and the rideshare platform's coverage may not yet apply. Drivers who use their vehicles for delivery, sales routes, or other business purposes face a similar gap. Rideshare endorsements or commercial auto policies exist specifically to address this. Check with your insurer before assuming your personal policy stretches to cover your professional driving.

Many states set liability minimums at levels like $25,000 per person for bodily injury — a figure that can be exhausted quickly in a hospital stay. If damages exceed your coverage limits, the injured party can pursue you personally for the remainder. Your wages, savings, and assets may all be at risk. The minimum keeps you legal; it doesn't keep you financially safe. This is a key reason to evaluate your limits based on what you could realistically be sued for, not simply what the law requires.

Insurance scoring is distinct from lending credit scores but draws on similar credit data — payment history, outstanding debt, and length of credit history among them. Insurers use it because historical data shows a statistical correlation between credit patterns and claim frequency. A handful of states, including California, Hawaii, and Massachusetts, prohibit or restrict this practice. Elsewhere, improving your credit profile can be one of the more effective long-term levers for reducing what you pay. For more on how credit misconceptions affect financial decisions broadly, see common credit score myths.

After a claim, many insurers apply a surcharge at renewal that can persist for three to five years. A fender-bender with $800 in damages, for example, might trigger $300 per year in additional premiums — meaning you effectively pay more than the repair cost over time. This doesn't mean you should never file; serious accidents, injuries, and large damage claims are exactly what insurance is designed for. But for minor incidents, especially where you're not at fault and no injuries are involved, it's worth calculating the long-term cost before deciding. Our guide on filing a car insurance claim without making it worse covers how to navigate that decision carefully.