Common Insurance Myths Debunked: What You Really Need to Know

I was at a car meet years ago when a fellow enthusiast proudly showed off his new, fire-engine-red sports coupe. “Got it in red,” he winked. “Yeah, the insurance is a bit more, but it’s worth it for the look.” I didn’t have the heart to tell him right then that he was likely paying the same rate he would have for a boring beige. He’d fallen for one of the most persistent, utterly baseless myths in the automotive world. And he’s far from alone.

Over decades of writing about cars and talking to thousands of owners, buyers, and agents, I’ve seen the same insurance misconceptions cost people real money, create false security, and lead to painful surprises. The industry’s jargon and fine print don’t help, but the root of the problem is often folklore—pieces of “common knowledge” passed around like fact. Let’s dismantle these myths, not with hypotheticals, but with the concrete realities I’ve observed time and again.

Myth 1: The Color of Your Car Determines Your Premium

The Belief: Red cars, or other "flashy" colors, cost more to insure because they’re ticketed more often or are more desirable to thieves.

The Reality: Your insurer does not ask for, nor do they care about, your car’s paint code. I’ve reviewed hundreds of policy forms and applications. The variables are make, model, model year, trim level, vehicle identification number (VIN), and sometimes your annual mileage. The premium is based on the car’s cost to repair, its safety record, its likelihood of being stolen, and the statistical claim history of that specific model. A red Honda Civic costs the same to insure as a grey one. A yellow Corvette might cost more than a white family sedan, but that’s because it’s a Corvette, not because it’s yellow. The color myth is a staggering example of correlation mistaken for causation; perhaps sportier models are often ordered in brighter colors, but the color itself is inert on the spreadsheet.

Myth 2: Your Credit Score Has No Bearing on Your Driving

The Belief: “My financial history shouldn’t affect my car insurance. It’s unrelated to my skills behind the wheel.”

The Reality: In most states, it absolutely does and legally can. This is often the most emotionally charged myth, and I understand the frustration. However, from an actuarial perspective—which is the cold, mathematical world insurers inhabit—the correlation is undeniable. Statistically, individuals with lower credit scores file more frequent and more costly claims. It’s not a judgment on character; it’s a predictive metric. Insurers are in the business of assessing risk, and decades of data show this is a powerful indicator. Fighting this reality is less productive than understanding it: improving your credit score is one of the most effective, long-term strategies for lowering your premium. I’ve seen drivers shave hundreds off their annual bill simply by repairing their credit, a far greater impact than shopping for a new policy every six months.

Myth 3: Full Coverage Means You’re Fully Covered

The Belief: If you have “full coverage,” any accident, mishap, or loss is taken care of.

The Reality: “Full coverage” is a dangerous, non-technical term that creates a false sense of security. In practice, it typically just means you carry both comprehensive and collision coverage. It says nothing about your limits. I’ve witnessed the devastating aftermath when someone with “full coverage” causes a multi-vehicle accident with serious injuries. Their policy had state-minimum liability limits of, say, $25,000 per person. The medical bills exceed that in the first hour at the trauma center. They are personally on the hook for the difference. “Full coverage” also doesn’t automatically include rental car reimbursement, gap insurance, or uninsured motorist coverage. You must specify and purchase these. Always think in terms of the specific protections on your declaration page, not a marketing phrase.

Myth 4: Your Insurance Will Cover You if You Use Your Car for Business (Like Rideshare or Deliveries)

The Belief: A personal auto policy covers all driving you do.

The Reality: This is a modern and increasingly common pitfall. The moment you log into a rideshare or delivery app with the intent to find a customer, you are engaged in commercial activity. Your personal policy almost certainly has an exclusion for “livery” or commercial use. If you get into an accident during this period—even while waiting for a ping—you likely have zero coverage. The platforms provide insurance, but it often has complex layers (periods with no coverage, contingent coverage, then full coverage) with high deductibles. I’ve spoken to drivers who faced financial ruin because they assumed they were protected. If you drive for any gig economy service, you must contact your insurer and either add a specific endorsement (often surprisingly affordable) or purchase a commercial policy.

Myth 5: A Ticket or Accident Automatically Makes Your Insurance Skyrocket

The Belief: One mistake and your rates will double overnight.

The Reality: While a violation or at-fault accident is never good, the outcome is more nuanced. Insurers look at the severity and the context. A single speeding ticket for 10 mph over the limit will likely result in a surcharge, but it may be a 10-20% increase at renewal, not a 100% hike. A major violation like a DUI or reckless driving is a different story—that will be catastrophic. Furthermore, many companies offer “accident forgiveness” programs, either as a paid add-on or a loyalty perk, for your first at-fault incident. The key takeaway I’ve observed is that insurers reward clean history more than they punish a single blip. Don’t assume one minor incident means you should stop shopping around; a different company might weigh it less heavily than your current one.

Myth 6: If Someone Else Drives Your Car and Crashes, Their Insurance is Primary

The Belief: The driver’s insurance always pays first.

The Reality: In the vast majority of cases, insurance follows the car, not the driver. This is a crucial distinction. If you lend your car to a friend, you are also lending them your insurance. If they cause an accident, the claim is filed against your policy. Your limits and deductibles apply. Their insurance might act as secondary coverage if the damages exceed your limits, but your policy is on the hook first. This is why you must be extremely careful about who you allow to drive your vehicle. Your premium and your record are at stake. I’ve seen friendships strained and finances wrecked over a borrowed car that ended up in a ditch.

Myth 7: Comprehensive Coverage is Optional if Your Car is Paid Off

The Belief: “The bank required it, but now that I own the car, I can drop it and save money.”

The Reality: This is a calculated risk, not an automatic smart move. Comprehensive covers non-collision events: theft, fire, hail, vandalism, and hitting an animal. The decision to drop it shouldn’t be based solely on whether you have a loan; it should be based on the value of your asset and your ability to replace it. If you own a 12-year-old sedan worth $3,000, and the comprehensive coverage costs $300 a year with a $1,000 deductible, the math is questionable. However, if you own a paid-off 5-year-old SUV worth $20,000, foregoing comprehensive means you are self-insuring for a total loss from hail or theft. Could you absorb that loss tomorrow? For many owners, the peace of mind is worth the premium long after the loan is gone.

Myth 8: The Factory-Installed Safety Features Are Already Accounted For

The Belief: All cars of the same model are rated the same.

The Reality: This is changing rapidly. Many insurers now offer explicit discounts for specific, verifiable safety technology. We’re not just talking airbags, which are standard. Discounts are increasingly applied for verified systems like:

• Automatic Emergency Braking (AEB)
• Adaptive Cruise Control
• Lane Departure Warning/Mitigation
• Blind-Spot Monitoring The critical word is verified. The insurer needs to know your specific car has it. This often means providing your VIN, which decodes the exact equipment. Don’t assume it’s baked into the base rate. When shopping for insurance on a new or newer used car, explicitly ask, “Do you offer discounts for advanced safety features, and how do I make sure they’re applied to my VIN?” I’ve seen owners leave a 5-10% discount on the table by not asking this simple question.

Myth 9: Your Insurance Will Instantly Pay Off Your Loan if the Car is Totaled

The Belief: The insurance settlement will match your loan balance.

The Reality: Insurance pays the Actual Cash Value (ACV) of the car at the time of the loss—what it was worth on the used market a minute before the crash. Loans, however, are based on the original purchase price. In the first few years of a loan, especially with a long term or a small down payment, you can easily be “upside-down”—owing more than the car is worth. The insurer’s check goes to the lienholder first. If it’s less than the loan balance, you are responsible for the difference. This is where Guaranteed Asset Protection (GAP) insurance is vital for new cars. Without it, you could be making payments on a car that’s now scrap metal. I’ve consoled too many people facing this exact financial blow.

Myth 10: Shopping for Insurance Annually Will Hurt Your Credit or Loyalty Status

The Belief: If you shop around, your current company will penalize you, or the inquiries will hurt your credit score.

The Reality: This is paralysis by misinformation. First, insurance shopping inquiries are typically coded as “soft pulls” on your credit report, which do not affect your credit score. Second, loyalty in insurance is often a one-way street. Companies frequently offer the best rates to new customers to lure them in, while existing customers see steady, gradual increases at renewal—a practice called “price optimization.” The most financially savvy owners I know set a calendar reminder to get competing quotes every 12-18 months. It takes an hour and can save you hundreds. Your current insurer won’t “blacklist” you; in fact, they may suddenly find a competitive rate to retain you when you call to cancel.

The Bottom Line: Take an Active Role

The overarching theme I’ve observed is that passive insurance owners pay more and are less protected. The system is complex, but it is not mystical. Your policy is a contract. Understand its components: the types of coverage (liability, comprehensive, collision, uninsured motorist), the limits (the dollar amounts), and the deductibles (your out-of-pocket share).

Once a year, do this: Pull out your declaration page. Call your agent or insurer and ask them to walk you through it. Ask, “What discounts might I now qualify for that I didn’t before?” Then, get three comparison quotes. This single afternoon of annual maintenance is more impactful for your automotive finances than almost any other habit. Drive informed, drive protected, and never let a myth cost you money again.