Why Insurance Myths Are Expensive
Auto insurance is one of the largest recurring costs of owning a vehicle — yet most drivers spend less than 20 minutes shopping for or reviewing their policy each year. That knowledge gap is exactly where myths take root. Believing the wrong things about how insurance works leads to real consequences: paying for coverage you don't need, skipping coverage you do, or making claims decisions that backfire financially.
Insurance pricing is genuinely complicated. Insurers weigh dozens of variables — vehicle type, driving history, location, annual mileage, credit history, and more — and the formulas aren't public. That opacity makes the space ripe for misinformation. The myths below are among the most common, and correcting them can directly affect what you pay and how well you're protected. For a broader look at what owning a vehicle actually costs, see our full breakdown of car ownership costs.
Myth
Red cars cost more to insure because insurers charge a premium for flashy colors.
Fact
Vehicle color is not a rating factor for any major U.S. auto insurer. Your premium is based on the make, model, trim, engine size, safety features, and your driving record — not the paint.
This is probably the most persistent auto insurance myth in existence. In reality, insurers don't even ask for your car's color on most applications. What they do care about is the vehicle identification number (VIN), which tells them the model, trim level, and factory features. A sports package or higher-displacement engine on an otherwise identical vehicle matters far more than whether it's red, silver, or white.
Myth
Your credit score has nothing to do with your car insurance rate.
Fact
In most U.S. states, insurers are legally permitted to use a credit-based insurance score as one factor in setting your premium. Poor credit can meaningfully increase what you pay.
Insurance companies use what's called a credit-based insurance score — a separate calculation from your standard FICO score, though it draws on similar underlying data. Statistically, insurers have found correlations between credit patterns and claim frequency, which is why regulators in most states allow it. A handful of states — including California, Hawaii, and Massachusetts — prohibit or restrict this practice. If you're unsure what your state allows, your state's Department of Insurance website is the authoritative source.
Myth
Carrying the state minimum insurance is enough to protect you financially.
Fact
State minimums set a legal floor, not an adequate safety net. In a serious accident, minimum limits can be exhausted quickly, leaving you personally responsible for the remainder.
Consider that many states require liability limits as low as $25,000 per person for bodily injury. A single emergency room visit, surgery, and rehabilitation can exceed that figure easily. Once your policy limits are reached, you can be sued personally for the difference. Minimum coverage also typically excludes damage to your own vehicle unless you add collision and comprehensive coverage separately. Meeting the legal minimum keeps you on the road legally — it doesn't necessarily keep you financially whole after an accident.
Myth
You should always file a claim for any damage to your car — that's what insurance is for.
Fact
Filing a claim for minor damage often costs more in long-term premium increases than the payout is worth. Small incidents may be better handled out of pocket.
After a claim — especially an at-fault one — your insurer may raise your premium at renewal. If the repair costs $900 and your deductible is $500, you'd receive $400 from the insurer. But if your annual premium then rises by $200 for the next three years, you've effectively paid $600 extra to collect that $400 payout. The math doesn't always favor filing. A useful rule of thumb: if the damage is close to or below your deductible, paying out of pocket usually makes more financial sense.
Myth
Once your car is paid off or old, you can drop all coverage except liability.
Fact
Whether to keep comprehensive and collision coverage depends on your vehicle's actual cash value and your ability to absorb a total loss — not just whether you have a loan.
Lenders require comprehensive and collision coverage while you're financing a vehicle, but the coverage's value to you doesn't disappear the moment the loan is paid off. If your car is worth $12,000 and a hailstorm or theft occurs, dropping comprehensive coverage means absorbing that entire loss yourself. The standard guidance is to reconsider comprehensive and collision when the annual premium for those coverages approaches or exceeds 10% of the vehicle's current market value — but that calculation is personal, not automatic.
Myth
Your personal auto insurance automatically covers you when using your car for delivery or rideshare work.
Fact
Most personal auto policies explicitly exclude commercial use. Driving for a delivery app or rideshare platform without the right coverage can leave a major gap.
Personal auto policies are written for personal use. The moment you're transporting passengers or goods for compensation, you've entered a category most standard policies exclude by contract. Rideshare and delivery companies typically provide some coverage during active trips, but there are gaps — particularly during the period when an app is open but no ride or delivery has been accepted. If you use your vehicle for any kind of paid work, contact your insurer directly to understand exactly what's covered and what isn't. A separate commercial endorsement or rideshare policy may be necessary.
Making Smarter Policy Decisions
Knowing what's myth and what's fact puts you in a much stronger negotiating and planning position. Review your policy at least once a year — not just the premium total, but each coverage section. If terms like liability limits, comprehensive, or PIP (Personal Injury Protection) feel unclear, our policy decoder guide walks through exactly what each part covers and why it matters.
Don't Assume Your Policy Covers Rideshare or Delivery Work
If you drive for any app-based service — rideshare, food delivery, grocery delivery — verify your coverage status with your insurer before your next shift. Standard personal auto policies commonly exclude this use, and a denied claim after an accident can leave you covering significant costs alone. Ask specifically about a rideshare endorsement or commercial use rider.
Credit score myths don't stop at insurance — if you're sorting out how credit works more broadly, the truth behind common credit score myths is worth a read. And if you're juggling multiple ownership costs at once, the same clear-eyed thinking applies to car maintenance myths that drain your wallet.
This article is for general informational purposes only and does not constitute personalized insurance or financial advice. Coverage rules, rating factors, and regulations vary by state. Consult a licensed insurance professional for guidance specific to your situation.
The content on this site is for informational purposes only and is not a substitute for professional advice. Always consult a qualified professional for guidance specific to your situation.