Auto Insurance Myths That Cost You Money

Imagine you're driving home from work, a light rain falling, when the car ahead slams on its brakes. You rear-end them. No one is hurt, but both cars are damaged. You exchange insurance info, relieved you have coverage. Then you find out your liability limits won't cover the other driver's $24,211 bodily injury claim (III — Auto Insurance Facts & Statistics). Now you're personally on the hook for the difference. This scenario plays out every day because most drivers misunderstand what their auto policy actually does. Let's bust some myths and get you straight.

Do I really need more than the state minimum?

Yes. Almost every state requires you to carry auto liability insurance before you drive, with New Hampshire being the lone exception—it just requires you to prove you can pay for an at-fault accident (III — Compulsory Auto Insurance). But state minimums are just that: minimums. They often fall far short of real-world claim costs. The average auto liability claim in 2022 was $24,211 for bodily injury and $5,313 for property damage (III — Auto Insurance Facts & Statistics). If your limits are 25/50/25 (common in many states), you could be personally liable for anything above those amounts. Buy at least 100/300/100, and consider an umbrella policy if you have assets to protect.

What happens if I get hit by an uninsured driver?

You could be stuck paying your own bills. About 13 percent of U.S. drivers are uninsured (III — Compulsory Auto Insurance). That's roughly one in eight cars on the road. If one of them hits you, your liability coverage won't help because it only pays for damage you cause to others. You need uninsured/underinsured motorist coverage (UM/UIM) to protect yourself. It's usually cheap to add—do it. And if you're in a state with a lot of uninsured drivers, bump up your UM limits to match your liability limits.

Is full coverage really full?

No. "Full coverage" is a marketing term, not a policy type. Typically it means you have liability, collision, and comprehensive coverage. Collision pays for damage to your car in a crash, and comprehensive covers non-collision events like theft, fire, or hail (Investopedia). But even "full coverage" has exclusions and limits. For example, if you use your car for business deliveries, your personal policy may not cover an accident. Always read the exclusions.

Do I need collision and comprehensive if my car is old?

Probably not. About 80 percent of insured drivers buy comprehensive and 76 percent buy collision (III — Auto Insurance Facts & Statistics). But if your car is worth $3,000 and your deductible is $1,000, the most you can get from a collision claim is $2,000—minus any depreciation. The average collision claim in 2022 was $5,992, but that's across all vehicles (III — Auto Insurance Facts & Statistics). For an older car, the premium you save by dropping collision and comprehensive might be better put toward a new car fund. Run the numbers: if your annual premium for these coverages exceeds 10 percent of your car's value, consider dropping them.

Does my credit score affect my auto insurance?

In most states, yes. Insurers use credit-based insurance scores to predict risk. A poor score can raise your premium significantly. The exact impact varies by state and insurer, but improving your credit can lower your rate. Pay bills on time, reduce debt, and check your credit report for errors. This is one of the few things you can control that directly affects your premium.

What's the deal with SR-22 filings?

An SR-22 is not an insurance policy—it's a form your insurer files with the state to prove you carry the required minimum liability coverage (GAINSCO — SR-22). It's typically ordered after a DUI/DWI conviction, driving without insurance, or an uninsured at-fault accident. You'll need to keep it for a set period (often three years), and your insurer may charge a fee. If you're required to file an SR-22, shop around—not all insurers offer them, and rates vary widely.

Should I raise my deductible to save money?

Yes, if you have an emergency fund. Deductibles are typically $500 or $1,000, and a higher deductible means a lower premium (III — How Much Auto Coverage). Going from $500 to $1,000 might save you 10–15 percent on your premium. But don't set a deductible you can't afford to pay after an accident. Keep at least $1,000 in savings before you raise it.

What I'd actually do

Here's my blunt advice: buy more liability coverage than you think you need. Get at least 100/300/100, add uninsured/underinsured motorist coverage at the same limits, and set your deductible at $1,000 if you have the cash to cover it. Then shop your policy every two years—loyalty doesn't pay. The average auto insurance expenditure was $1,062 per vehicle in 2021, but that's just an average; your rate depends on your record, location, and credit (III — Auto Insurance Facts & Statistics). Don't skimp on protection to save a few bucks. One bad accident can wipe you out.

Sources

• III — Compulsory Auto Insurance: https://www.iii.org/article/background-on-compulsory-auto-uninsured-motorists
• III — Auto Insurance Facts & Statistics: https://www.iii.org/fact-statistic/facts-statistics-auto-insurance
• III — How Much Auto Coverage: https://www.iii.org/article/how-much-auto-coverage-do-i-need
• GAINSCO — SR-22: https://www.gainsco.com/news/what-is-an-sr-22/
• Investopedia: https://www.investopedia.com/terms/i/insurance.asp