Auto Insurance Myths: What You Actually Need to Know

Imagine you just bought a shiny red car, and your neighbor tells you, “Red cars cost more to insure.” You nod, but is it true? Or maybe you've heard that your credit score doesn't matter for auto insurance, or that the state minimum is all you need. I'm here to tell you: most of what you've heard is wrong. After years of reading insurance fine print, I've got a strong opinion: you're probably underinsured, and you're definitely paying for things you don't need. Let's bust some myths and get you the right coverage for the right price.

Does the Color of My Car Really Affect My Premium?

No. The color of your car has zero impact on your auto insurance rate. Insurers care about your car's make, model, age, safety record, and theft rate—not its paint. A red Ford Mustang might cost more to insure than a blue Honda Civic, but that's because of the car's performance and repair costs, not the color. So, go ahead and buy that cherry-red sedan if you want—just don't blame the paint for your premium.

Is the State Minimum Coverage Enough?

This is the biggest myth of all. Virtually every state requires liability insurance, but the minimums are shockingly low. In 2022, the average auto liability claim for bodily injury was $24,211, and for property damage it was $5,313 (III). If you cause an accident and only have the bare minimum, you could be on the hook for thousands out of pocket. I advise everyone to carry more than the state minimum—way more. The peace of mind is worth the extra few bucks a month.

What's the Deal with Deductibles? Should I Always Choose a Higher One?

Deductibles are typically $500 or $1,000, and yes, a higher deductible lowers your premium (III). But here's the catch: if you can't afford to pay that deductible out of pocket when you have a claim, a high deductible could be a financial disaster. I recommend setting your deductible to an amount you could comfortably pay tomorrow. For most people, that's $500 or $1,000—not $2,500. Don't let a few dollars a month in savings turn into a financial crisis when you need your car fixed.

Do I Need Collision and Comprehensive Coverage on an Older Car?

This is a judgment call, but I have a strong opinion: once your car's value drops below about $3,000, collision and comprehensive coverage often isn't worth it. Here's why: if your car is totaled, the insurer only pays the actual cash value, minus your deductible. If your car is worth $2,000 and your deductible is $500, you'd get $1,500—but you've been paying premiums for years. On average, about 80% of insured drivers have comprehensive, and 76% have collision (III), but that doesn't mean you should. Do the math on your car's value and your premium. If the premiums are more than 10% of the car's value per year, drop the coverage.

Is an SR-22 the Same as Insurance?

No, and this is a dangerous misconception. An SR-22 is not an insurance policy; it's a form your insurer files with the state to prove you have the required liability coverage (GAINSCO). You typically need an SR-22 after a DUI/DWI, driving without insurance, or an uninsured at-fault accident. If you let your insurance lapse, your insurer will notify the state, and you could lose your license. So, if you need an SR-22, you still need actual insurance—and you'll probably pay higher rates because you're considered high-risk.

Does My Credit Score Affect My Auto Insurance Rate?

Yes, and it's legal in most states. Insurers use credit-based insurance scores to predict risk, and a lower score can mean higher premiums. This might seem unfair, but it's a widespread practice. If your credit isn't great, you can still shop around—some insurers weigh credit less than others. But don't be shocked if your premium is higher than someone with excellent credit. It's not a myth; it's just how the industry works.

What Is the 'Shared Market' and Why Should I Care?

If you have a terrible driving record or multiple DUIs, you might not be able to get insurance in the private market. But all states and the District of Columbia guarantee that auto insurance is available through assigned risk plans—the shared or residual market (III). These policies are usually more expensive, but they keep you legal. The key takeaway: you can always get insurance, even if you're high-risk. But it's a last resort, not a bargain.

Are Uninsured Drivers a Big Problem?

Yes, and it's worse than you think. Close to 13% of drivers are uninsured (III). If an uninsured driver hits you, your own collision coverage can pay for repairs, but you'll still owe your deductible. That's why uninsured motorist coverage is so important—it protects you when the other driver has no insurance. I consider it essential, not optional. And if you're in a state with a high uninsured rate, it's even more critical.

Quick Tip

Before you sign up for any policy, ask for a quote with a $1,000 deductible versus a $500 deductible—you might be surprised how much you save.

Final Word: The Single Most Important Thing

The most important thing to remember is that auto insurance is about protecting your finances, not just following the law. The state minimum is rarely enough, and you're better off carrying higher liability limits and uninsured motorist coverage. Don't fall for the myths—do the math, shop around, and make sure you're covered for real-life accidents, not just the minimums.

Sources

• 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/
• III - Compulsory Auto Insurance - https://www.iii.org/article/background-on-compulsory-auto-uninsured-motorists