Car insurance is a necessity for many Americans but can also be complex to grasp. Like other financial services, the insurance industry can be overwhelming if you’re not well-versed in its intricacies. A lack of understanding about your policy could lead to errors such as underinsuring your vehicle or paying more than necessary for coverage. To assist drivers in navigating and optimizing their policies effectively, Bankrate’s insurance editorial team clarifies car insurance facts from common myths you might have encountered.
1. You can negotiate your premium
False! Negotiating the price of car insurance is not possible.
Car insurance companies utilize proprietary algorithms to assess your risk profile, and your premium reflects this risk assessment. State insurance departments oversee and approve these rates, meaning they are not open to negotiation. If another insurer offers you a lower rate, it’s because their algorithm perceives you as a lower risk. However, you cannot use this lower quote to bargain with other insurers to match it, as they cannot alter their rating algorithms to compete for your business.
While you cannot negotiate the rates themselves, you can influence your premium by adjusting your coverage levels, applying eligible discounts, or maintaining a safe driving record.
2. You don’t need medical payments if you have health insurance
If you’re looking to reduce your car insurance costs, you might be thinking about forgoing medical payments coverage (MedPay), especially if you already have health insurance. MedPay covers medical expenses for you and your passengers in case of an accident, regardless of fault. Some states offer personal injury protection (PIP) instead of or in addition to MedPay, and in no-fault states, PIP is mandatory for all drivers.
Having health insurance might make MedPay on your auto policy seem unnecessary. However, there are several reasons to consider keeping both types of coverage. Firstly, your health insurance may have limitations that could result in out-of-pocket expenses, such as ambulance fees, which MedPay or PIP could cover. Your auto policy could also help cover your health insurance deductible. Moreover, if you reside in a state with PIP, this coverage goes beyond medical expenses; it can also reimburse lost wages, childcare costs, and household services like cleaning and yard maintenance.
3. Full coverage covers everything
“Full coverage” is an industry term indicating that your policy includes both comprehensive coverage and collision coverage, which protect your vehicle from various types of damage. However, having full coverage does not mean you are protected against every possible scenario. Deliberate damage, for instance, is never covered, nor are routine maintenance expenses or repairs due to normal wear and tear.
A more accurate way to view full coverage is as a policy that provides physical damage protection for your vehicle in addition to any mandatory coverage required by state laws. While state laws typically do not mandate physical damage insurance for vehicles, full coverage enables you to file claims for vehicle damage regardless of fault. If you are leasing or financing your vehicle, your lender will likely insist that you maintain full coverage until your car loan is fully repaid.
4. You only need minimum coverage
Each state establishes minimum coverage requirements that determine the mandatory amount of auto insurance needed to legally operate a vehicle. In most states, this minimum coverage includes a moderate level of liability coverage to protect against injuries or damages caused while driving. Some states also mandate uninsured/underinsured motorist coverage, personal injury protection (PIP), or medical payments coverage.
However, these minimum coverage requirements often do not provide sufficient financial protection for most drivers. For example, in a state with liability limits of $25,000/$50,000/$25,000, this would cover up to $50,000 in medical bills or $25,000 in damages per accident — which may not be enough considering rising car values and healthcare costs. Exhausting your coverage could potentially lead to significant financial difficulties.
Insurance professionals generally advise increasing your liability limits beyond the minimum requirement. A common recommendation is to opt for liability insurance of $100,000/$300,000/$100,000. The additional cost of higher liability limits is typically minimal each month. For drivers who cannot afford to replace their vehicle independently, investing in a full coverage policy that includes physical damage coverage is often considered a prudent decision.
5. Your quote is what you will pay
A quote serves as an estimated cost provided by car insurance companies based on the information you provide. It represents their best guess at what your premium will be. However, if the information you provide is inaccurate or incomplete, your actual price could differ when you finalize your policy.
Before you can purchase coverage, auto insurance companies typically review two reports: a Comprehensive Loss Underwriting Exchange (CLUE) report and your Motor Vehicle Record (MVR). These reports detail your history of insurance claims and traffic incidents. If you omitted relevant information or provided incorrect details in your application, it’s likely that your final price will increase to reflect the accurate risk assessment based on these reports.
6. All car insurance companies are the same
While most car insurance providers offer similar basic coverage, they differentiate themselves through various factors. Each company employs its own rating system, resulting in different premium rates for identical coverage.
Additionally, insurers offer unique discounts and optional policy enhancements that allow you to tailor your coverage. If you require coverage beyond standard options, you may need to find an insurer that offers specific endorsements. Examples of useful add-ons include:
- Gap insurance
- Accident forgiveness
- Rideshare insurance
- Full glass coverage
- Rental car reimbursement
- Roadside assistance
Insurance companies also vary in their operational approaches. Some, such as State Farm and Erie, emphasize traditional customer service through local agents. Others, like Geico and Progressive, prioritize digital solutions like online platforms and mobile apps.
Lastly, third-party evaluations of customer satisfaction and financial strength vary widely among insurers. These ratings can provide valuable insights to help you assess the overall reliability and service quality of each insurer.
7. A not-at-fault accident won’t affect your rates
If the other driver’s insurance covers all expenses, and you avoid filing a claim with your own insurer or resolve the matter privately, this should hold true. However, if you do file a claim with your insurance provider, even if you’re not at fault, there’s a chance your premium could rise.
Ideally, you shouldn’t face penalties or surcharges for a claim that wasn’t your fault. However, if you have a discount for maintaining a claim-free record, filing a claim could potentially lead to losing this discount, thereby increasing your premium.
8. New cars are always more expensive to insure
It’s commonly believed that insuring a new car is always more expensive than insuring a used vehicle, but this isn’t the whole story.
New vehicles often include the latest safety features, which can significantly reduce the risk of accidents and injuries. Insurance companies may see these cars as lower risk and offer lower premiums as a result. Additionally, some insurers provide discounts specifically for new vehicles, which can help offset insurance costs.
However, the advanced technology in new cars also means higher upfront costs and potentially higher repair bills, which can lead to increased insurance premiums. If you’re thinking about buying a new car and concerned about insurance expenses, it’s wise to compare insurance rates from multiple companies for both your current car and the model you’re considering.
9. Drivers with red cars pay more for insurance
The idea that drivers of flashy red vehicles are more likely to engage in risky driving behaviors and face higher car insurance premiums is a complete myth, especially for red car owners.
In reality, your car insurance company likely doesn’t even know the color of your car. Insurance companies base premiums on factors like your vehicle’s make, model, age, safety features, and other relevant criteria. The only exception might be if you opt for coverage specifically for a custom paint job, where any additional cost is more related to the custom paint itself rather than the color alone.
10. If someone else drives your car, they cover any damage
The myth that insurance follows the driver, not the car, is incorrect—it actually works the opposite way. Car insurance follows the car, not the driver.
If you lend your car to a friend and they cause an accident, your insurance policy will be the primary coverage. Your friend’s policy might serve as secondary coverage, but only if the limits on your policy have been exhausted. Some policies may also have driver exclusions, which could mean that no one else is covered to drive your vehicle. Therefore, it’s important to fully understand how your policy operates before allowing someone else to drive your car.
In Conclusion
Gaining a clear understanding of car insurance, including how it’s priced and when coverage applies, empowers you to make informed decisions in today’s complex insurance market. If you have uncertainties about your policy, consider discussing them with your insurance agent or exploring insurers known for their transparent practices.