We uncover the truths behind auto insurance fictions.
By Johns Loos
Misinformation, rumor, hearsay. There's some in every industry, though the detailed and sometimes complex nature of auto insurance makes it particularly prone to misconceptions.
If you're purchasing a new policy, changing policies or insurers, or just wanting to learn more about your existing rate, it helps to separate fact from fiction.
Myth 1: Older cars always cost less to insure
The truth: Not necessarily. While the age of your vehicle may influence your rate in certain cases, insurers look at many aspects of your car. "Typically an older car will probably be less costly, however, it depends on the car," says Loretta Worters, vice president of the Insurance Information Institute (III). "Rates are based on not just the age of the car, but how popular they are with thieves, difficult to get parts, cost of the parts, etc."
Myth 2: Red cars cost more to insure
The truth: You can paint your car any pigment on the rainbow, but the color of your car makes no difference to insurers, according to the Oklahoma Department of Insurance. The majority of insurers care only about the make, model, and miles on your vehicle, not the hue. So go ahead and paint it like a candy cane or a football, your insurance rate shouldn't budge.
Myth 3: Cheaper insurance is always better
The truth: Being too frugal when selecting an auto insurance policy may cost you more in the event of an accident. According to a press release from the III, "In today's litigious society, buying only the minimum amount of liability [insurance] means you are likely to pay more out-of-pocket for losses incurred after an accident - and those costs may be steep." Liability insurance refers to insurance that protects you if your vehicle does damage to something or someone else.
Myth 4: Bad credit won't affect auto insurance rates
The truth: It's true, in most states, bad credit can hurt. According to the III, insurance companies frequently create their own scores based on your credit history - this is called a credit-based insurance score - to determine your car insurance rate. These scores are used when you buy, renew, or alter your auto insurance, as credit-based insurance scores are interpreted as a direct reflection of your fiscal responsibility. If you don't have good credit, your rates will likely be affected.*
Myth 5: Older drivers always pay more
The truth: Though age can be one of the major determinants of the regular rate (or "premium") you pay for coverage, according to the National Association of Insurance Commissioners, being older doesn't necessarily mean paying more. For example, persons over 55 can take special accident prevention courses to qualify for a discounted premium. Like AARP's online driver safety program for people over 50. AARP from The Hartford specifically targets individuals over the age of 50 for exclusive savings.
Myth 6: Auto insurance companies have no limit to what they can charge
The truth: No way. "Insurance companies can't arbitrarily raise rates," says Worters.
"They must request a rate increase with the state insurance department and show cause for the rate increases. Sometimes insurance commissioners at state insurance departments will allow them to increase rates...That is the rate they must adhere to."
Worters adds that rates differ between insurers because the cost of doing business varies from state to state.