Common Auto Insurance Myths

Auto insurance is one of the most commonly bought financial products, and one of the least understood. Many car owners feel that they have a good understanding of their policy, but the data and consumer complaints indicate that confusion is still prevalent. This confusion is more than just an annoyance; it can result in claims being denied, unexpected costs, or years of overpaying for inadequate coverage of real-world risks.

The issue is, in part, a matter of design. Auto insurance policies are couched in terms of the law and regulations that do not easily translate into the world of everyday decision-making. Over time, car owners have filled in these gaps with assumptions, hearsay, or outdated rules of thumb. Some of the most common auto insurance myths and why they continue to be held in the face of evidence to the contrary are listed below.

Myth: Red cars cost more to insure

Car color does not have a practical effect on insurance rates. Although red cars are commonly linked with speeding or being conspicuous on the road, insurance companies do not calculate risk according to car color. Insurance companies use actuarial information related to the probability of loss and the severity of claims. This includes car make and model, engine type, safety features, theft rates, repair difficulty, and claims history for similar cars. A red car and a blue car of the same make and model are considered identical by the insurance company, but both can cut costs effectively.

This myth is mainly perpetuated because it sounds plausible, not because it is true.

Myth: Comprehensive coverage means “full coverage”

This is perhaps one of the costliest misunderstandings a driver can have. Comprehensive coverage provides for non-collision occurrences like theft, vandalism, fire, flooding, falling objects, or weather-related damage. Comprehensive does not provide for collisions with another object or vehicle, or for rollover accidents.

What is generally termed “full coverage” is actually a combination of several different types of coverage, usually including liability, collision, and comprehensive coverage. Removing collision coverage and leaving comprehensive in place can greatly reduce premiums, but it also means the driver must be prepared to pay full damage or replacement costs in the event of a collision for which he or she is at fault. The difference is usually not clarified until a claim is denied.

Myth: Personal auto insurance covers ride-share driving

Personal automobile policies are for personal use and not for business. If the car is being used for ride-sharing, the coverage depends on the status of the app and the wording of the policy.

In some cases, the personal policy covers the car when the app is completely inactive. Once the app is turned on, even if there is no passenger, the coverage may change or be limited. Ride-share services do offer some level of insurance, but there may be gaps depending on the circumstances and the province.

Consumer advisories from the sources warn that if the ride-share activity is not disclosed to the insurance company, the claim may be denied or the policy may be canceled even if the accident occurs outside of a ride-sharing trip.

Myth: Moving homes doesn’t affect auto insurance rates

Car insurance rates are very location-dependent. Insurance companies employ geographic rating territories that take into account traffic, collision rates, theft rates, vandalism rates, and even local repair shop costs.

A change of address that involves a change of postal code, even if it’s just for a short distance, can lead to an adjustment in insurance rates. Sometimes, moving closer to the city increases insurance rates, while other times, moving away from high-risk areas decreases them. This often catches drivers off guard because they think that the only factor that affects their insurance rates is their driving. Location is important because it is directly related to claim frequency.

Myth: Any claim automatically raises your premium

For premium increases, the nature of the claim and fault are considered. In the case of accidents that are the policyholder’s fault, there is a premium increase because there is a higher future risk. In the case of accidents that are not the policyholder’s fault, there is no rate increase.

For comprehensive claims such as hail or theft, there is no surcharge. However, the insurer monitors the number of comprehensive claims. If there is a trend of repeated claims, this could have an impact on the policy renewal. The idea that “any claim means a rate hike” is not true.

Myth: Parking tickets increase insurance premiums

Parking tickets are not moving violations and do not factor into insurance pricing. Automated camera tickets issued to a vehicle are not typically considered when calculating insurance premiums because they are not issued against a licensed driver. In contrast, moving violations issued by law enforcement officers, such as speeding or distracted driving, are directly related to insurance pricing models. This distinction matters, yet it’s frequently misunderstood.

Why these myths persist

Myths and misconceptions about auto insurance are perpetuated because they are easy to repeat and hard to verify. Insurance policies are not often reviewed unless something goes wrong, and many people rely on advice that may no longer be relevant to the current underwriting policies and legislation. The true cost of these myths and misconceptions is not the extra premiums. It’s the false assumption of security that the insurance will respond as expected if something goes wrong. Auto insurance is not based on assumptions. It’s based on the policy wording and the data. Understanding this distinction is one of the very few surefire ways of protecting oneself from unpleasant and costly surprises down the line.