Car insurance is one of those topics where misinformation spreads easily. People repeat things they heard from a friend, assume rules that apply in one state apply everywhere, or misunderstand how coverage actually works. Some of these myths are harmless. Others lead people to make genuinely bad decisions: buying the wrong coverage, skipping coverage they need, or handling claims in ways that hurt them.
These misconceptions come up constantly in car insurance reddit discussions, and clearing them up can make a real difference in how you manage your coverage.
This guide goes through the most persistent car insurance myths and replaces them with accurate information.
Myth 1: Red Cars Cost More to Insure
This is probably the oldest and most widely believed car insurance myth, and it is completely false. Insurance companies do not ask about the color of your car when calculating your rate. They care about the make, model, year, engine size, body style, and safety features, but not the paint color. The red car myth likely persists because red cars are associated in people’s minds with sports cars and speeding, but it is the vehicle type that affects the rate, not the color.
Myth 2: Minimum State Coverage Is Enough
State minimum liability requirements are the legal floor, not a sensible coverage level. Most state minimums are set at levels like 25/50/25: $25,000 per injured person, $50,000 per accident, and $25,000 for property damage. A single moderately serious accident can easily exceed these limits. If you cause an accident that injures two people and damages an expensive vehicle, the liability can reach $100,000 or more. Anything beyond your coverage limit comes out of your personal assets.
Carrying only minimum coverage is a significant financial risk, not a savvy money-saving move. Most insurance professionals recommend at least 100/300/100 for liability coverage, and higher if your net worth is substantial.
Myth 3: Your Insurance Follows the Driver, Not the Car
This is backwards. In most situations, car insurance follows the car, not the driver. If you lend your car to a friend and they get into an accident, your insurance is the primary coverage. Your friend’s insurance, if they have it, is typically secondary. This matters because the claim goes on your record and affects your rate, even though you were not driving.
There are situations where coverage is more complicated: if someone steals your car or if the driver was explicitly excluded from your policy. But the general principle to remember is that when you lend your car, you are also lending your insurance.
Myth 4: Comprehensive Coverage Means Everything Is Covered
The word comprehensive is misleading. Comprehensive coverage does not mean all-inclusive coverage. It covers damage to your vehicle from causes other than collision: theft, vandalism, weather events, fire, hitting an animal, and falling objects. It does not cover mechanical breakdown, normal wear and tear, damage from potholes (that is collision), or damage from flooding if it results from a maintenance failure rather than a weather event.
“Full coverage,” which is another imprecise term, means you have liability plus comprehensive plus collision. Even then, there are exclusions. Understanding what is and is not in your policy requires actually reading the exclusions section, which most people never do.
Myth 5: Your Credit Score Can’t Affect Your Insurance Rate
In most US states, it can and does. Insurers use a credit-based insurance score when calculating premiums, and this is legal in 47 states. Research going back decades consistently shows a correlation between credit score and insurance claim frequency. California, Hawaii, and Massachusetts are the exceptions where credit-based pricing is banned.
Drivers who believe this myth and have subpar credit may be missing the opportunity to improve their credit and capture the resulting insurance savings. The impact can be significant: moving from a poor to a good credit score can reduce auto insurance premiums by 20% or more.
Myth 6: Filing a Small Claim Always Makes Financial Sense
The whole point of insurance is to file claims when something goes wrong, but filing every small claim can cost you more than it saves. Most insurers apply a surcharge at renewal after an at-fault claim. The surcharge often persists for three years. If a claim saves you $400 in repair costs but raises your annual premium by $200 for three years, you have paid $600 more than if you had just paid for the repair yourself.
For minor damage, the smart move is to get a repair estimate first. If the cost is close to or below your deductible, paying out of pocket keeps your record clean. If the cost significantly exceeds your deductible and your record is otherwise clean, the claim may make financial sense.
Myth 7: Older Cars Don’t Need Much Insurance
Dropping comprehensive and collision on an older, low-value vehicle can be the right financial decision, but the reasoning matters. An older car with low market value means the maximum payout from a total loss claim is small, so the cost-benefit of carrying those coverages declines. However, liability coverage should remain robust regardless of how old your car is. If you cause a serious accident in a 15-year-old beater, the other driver’s injuries and vehicle damage can still reach six figures. Liability limits should be set based on your financial exposure, not based on how old your car is.
Myth 8: Loyalty Gets You the Best Rate
Staying with the same insurer for years does not guarantee you a competitive rate. Many insurers practice a pricing strategy sometimes called “price optimization,” where they gradually raise rates for long-term customers who show a low probability of shopping around or switching. Loyal customers who never compare quotes often end up paying more than new customers.
The practical implication is straightforward: compare quotes regularly, at least every year or two, and use competitive offers to negotiate with your current insurer or switch if the savings are meaningful. Loyalty is worth something, but not more than a 15% to 20% rate difference.
Myth 9: Your Personal Auto Policy Covers Business Use
Standard personal auto insurance policies exclude coverage for vehicles used for commercial purposes. If you regularly use your car for business, deliver goods or food, drive for Uber or Lyft, or transport clients, your personal policy may not cover accidents that occur during those activities. Many drivers find this out the hard way when a claim is denied.
Rideshare drivers need specific rideshare endorsements or commercial policies. Delivery drivers need commercial auto coverage. Anyone who regularly uses their vehicle for business activity beyond normal commuting should discuss their coverage with their insurer.
Myth 10: Insurance Pays Out the Full Value of Your Car
When your car is totaled, insurance pays the actual cash value (ACV), which is the fair market value of the car just before the accident. This is not what you originally paid for the car, and it is not what it would cost to replace it with a new equivalent. ACV accounts for depreciation, mileage, and condition. A car you bought for $28,000 three years ago might have an ACV of $18,000 when it is totaled, which is what insurance pays.
Gap insurance covers the difference between the ACV payout and the remaining loan balance when you owe more than the car is worth. If you financed a new car recently and would owe more than the ACV if totaled, gap insurance is worth having.
Frequently Asked Questions
How do I know what my policy actually covers? Read the declarations page for a summary and the full policy document for specifics, particularly the exclusions section. If something is unclear, call your insurer and ask for a written confirmation of your question and their answer.
Where do these myths come from? Most come from partial truths that get oversimplified: the red car myth probably started because someone noticed their rate changed when they got a sportier car. The loyalty myth exists because some insurers do reward long-term customers. But partial truths make bad financial decisions.
