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8 Car Insurance Myths You Should Send to the Junkyard

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From the old fiction about red cars costing more to insure, to the one about rates dropping when you turn 25, to the idea that "full coverage" means you get a new car after a crash, myths about car insurance abound. And they're easy enough to take at face value -- until you look at the facts. Not falling for these eight insurance fables could save you some cash.

1. "Full coverage" will get me a new car if I crash. Your auto repair shop may thank you for having collision and comprehensive coverage, because they'll get paid by your insurer for fixing your car. But however you define "full" coverage, it won't equate to you getting a new car after you crash. Insurance is meant to put you back to where you were, not improve upon it, so you won't be getting a better car than you had.

If your car insurance agent tells you that you have "full coverage," ask what that entails. It could include liability, property damage and rental reimbursement, says Shane Fischer, an attorney in Winter Park, Fla. "Unfortunately, most people who claim to have 'full coverage' are people of modest incomes who buy the cheapest policy their state legally allows," he says. "This can leave them without uninsured motorist coverage if they're a victim of a hit and run, without a rental car if theirs is damaged in a crash or personally responsible for thousands in medical bills if they don't have enough liability coverage."

Full coverage isn't an insurance term agents use, says Adam Lyons, CEO of The Zebra, a digital auto insurance agency. Collision insurance covers damage to your vehicle in an accident. Comprehensive covers non-accident damage, such as from theft and fire. If you want medical coverage and other protections, you'll have to spell that out for your agent, Lyons says.

2. My rates will go up if I get a traffic ticket. Not always, says Matthew Neely, owner of Eco Insurance Group in Las Vegas. A client who has six speeding tickets in the past three years hasn't had his rate go up, he notes.

Here's how it works, Neely says: Some companies only ask for a record of an applicant's driving history when he or she first sign up for a policy. Motor Vehicle Reports cost $3 to $28, depending on the state. "These charges can get very expensive for insurance companies, so a lot of the time the carrier will randomly select households and run the MVRs," he says. "If you are lucky enough, the insurance company will not find out about your speeding habit. However, if you let your insurance lapse, get into an accident or change insurance carriers, the carrier will run the MVR."

3. Thieves prefer new or fancy cars. Not true, points out Lyons. Of the 10 most frequently stolen cars, the most stolen in 2012 was the 1996 Honda Accord, according to the National Insurance Crime Bureau. You might have the latest and fanciest car, but a 1996 Accord is preferable for catalytic converters and other parts that are more in demand. To protect your car against theft, get comprehensive insurance.

4. My red car will cost more to insure. False. Insurers don't care what color your car is and they don't ask for that information. Police might spot a speeding red car quicker than a white one, but an insurer factors in other aspects of your car, such as model, make, year and engine size.

5. The longer you are with an insurance company, the lower your rate will be. This is half true, Neely says. Longevity discounts are sometimes offered to policyholders, but it doesn't shelter them from increased costs, he says. "Most of the time, the moment you make a claim, this discount will disappear, and it does not guarantee your rate will not increase," Neely says.

6. My credit score has nothing to do with my car insurance rate. In most cases it's the biggest factor of determine your rate, right after your driving record, Neely says. Studies have shown that individuals with good credit get in fewer accidents, he says, though insurers in California, Hawaii and Massachusetts can's use credit as a rating factor.

7. No fault means I am not at fault. In most states "no fault" simply means that each insurance company involved pays for their respective policyholders injury-related bills, regardless of who is at fault, Neely says. This helps keep the overall cost of car insurance down.

8. Rates drop at age 25. Rating factors vary by state, but in North Carolina, the myth is wrong because age isn't a factor in pricing, says Jonathan Peele, president of Coastline Insurance Associates of North Carolina. Instead, insurers use the years of experience to determine the rate. Once the driver has more than three years of driving experience, the insurer can't surcharge the premium, he says. Less experienced drivers are charged more for car insurance because they have a higher risk.

A former newspaper journalist, Aaron Crowe is a freelance writer who specializes in personal finance, real estate and insurance for various websites, including Wisebread, insurance websites, MortgageLoan.com and AOL.

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7 Comments

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o.brown16

We know all companies are looking for profit but the thing is that they are satisfying our needs or not , if they are planning their product according to our necessity then it is also helpful to us.So here many insurance companies are giving us auto insurance facility and we should search what will affect our needs. Just check for good option of insurance facilities here.....http://www.paytonins.com/auto-insurance.html

August 06 2014 at 1:48 AM Report abuse rate up rate down Reply
Vera Chang

Just remember that auto insurance companies are "for profit", meaning they will do whatever it takes to make the most money out of you. They will raise your premiums whenever they get unless you "keep them in check" by switching to a new provider (or at least threatening to).
If your rates go up, just go find better ones out there. It's pretty easy. The cheapest I found were $24/month for my Honda Civic (from Insurance Panda). This was after Farmers tried to shoot me up to $57/month. Always be shopping around..

April 10 2014 at 11:38 AM Report abuse +1 rate up rate down Reply
impactvqi

the insurance companies and the government can do what ever they want and we have to ly down and take it, sad

April 09 2014 at 8:05 PM Report abuse rate up rate down Reply
pfjw

Sheesh! Get over yourselves.

Insurance is _not_ political. It is a bet where you bet that you will lose, then do everything you can not to. The insurance company bets you will lose, and then does everything to help you lose as well. Ideally, you are both happy and the insurance company is wealthier. But given the general idiocy of individuals behind the wheel, given the number of impaired drivers - drugs/alcohol/stupidity/road-rage/carelessness - betting that one will 'win' is a sucker's bet.

April 09 2014 at 3:16 PM Report abuse rate up rate down Reply
RMS

Coverage varies from state to state, and so do premiums. I found out that my insurance is a lot less in Florida than in New York for the same coverage. However, the New York policy included full glass coverage with no deductible, while the Florida policy has no provision for glass coverage. Also, some companies will not issue you a policy if you have not been covered by another company in the last six months. And yes, insurance companies do share information with each other regarding the vehicles you own and your past record.

April 09 2014 at 11:36 AM Report abuse +1 rate up rate down Reply
1 reply to RMS's comment
sadiemae1214

It may be less in some parts of Florida, but not all. My insurance was high in Ft. Lauderdale, lower in Tampa and lower still, in Ocala. Premiums are not state based but zip code based. I lived in a small town in Kansas for a while and my premiums were $25.00 a month and I have Geico. I now live in Kentucky and my premiums are $43.00 a month. I've been with Geico since 1997 and my premiums can't go any lower. My last ticket (believe it or not was for 7 miles over the speed limit in a rural area) was in 1989. I'm accident free.

April 09 2014 at 12:26 PM Report abuse rate up rate down Reply
toosmart4u

George, you should say insurance companys and the republicans.

April 09 2014 at 11:03 AM Report abuse +2 rate up rate down Reply
George

The 2 biggest ripoffs there are, insurance companys and the government.

April 09 2014 at 9:00 AM Report abuse rate up rate down Reply