Key Takeaways
Why Insurance Myths Are a Financial Risk
Auto insurance is one of the most consistent ongoing costs of vehicle ownership — yet misunderstandings about how it works are widespread. Acting on bad assumptions can mean carrying the wrong coverage, overpaying for add-ons you don't need, or being blindsided by a claim that pays out far less than expected.
The myths below are among the most commonly repeated, and each one has a real financial consequence for drivers who believe them. Understanding how coverage actually works is a straightforward way to make more informed decisions. For a broader look at what car ownership really costs, see our guide on the true cost of owning a car.
Myth
Red cars cost more to insure because insurers charge extra for that color.
Fact
Insurers do not collect or use vehicle color as a rating factor — it has no effect on your premium.
This is one of the most persistent car insurance myths in circulation, and it is entirely false. When you purchase a policy, insurers ask for your vehicle's year, make, model, trim level, engine size, and VIN — not its color. Your premium reflects factors like the vehicle's safety ratings, repair costs, theft rates for that model, and your driving history. The color of the paint has never entered that calculation.
Myth
Your credit score has nothing to do with your car insurance rate.
Fact
In most U.S. states, insurers use a credit-based insurance score as one of several factors that influence your premium.
A credit-based insurance score is not identical to the score used for loan applications, but it draws on similar underlying data — payment history, outstanding balances, and length of credit history. Research used by insurers suggests a statistical correlation between credit patterns and claim frequency. California, Hawaii, Massachusetts, and Michigan are among the states that restrict or prohibit this practice, but drivers in the majority of states will see their credit profile reflected in their rate. Maintaining responsible credit habits can, over time, contribute to lower insurance costs.
Myth
Carrying the state minimum liability coverage is enough to protect you financially.
Fact
State minimums set a legal floor, not an adequate level of financial protection — a single serious accident can exceed those limits significantly.
Every state mandates minimum liability limits, but those minimums are often modest — in some states as low as $25,000 per person for bodily injury. A multi-vehicle accident involving medical bills, lost wages, and legal costs can quickly surpass that amount. When a claim exceeds your policy limits, the remaining balance becomes your personal financial responsibility. Many insurance professionals recommend evaluating limits in the context of your assets and potential exposure, rather than defaulting to the state minimum simply because it satisfies the legal requirement.
[warning_callout]Myth
If your car is totaled, your insurer will pay you what you originally paid for it.
Fact
After a total loss, insurers typically pay the vehicle's actual cash value (ACV) at the time of the loss — not the original purchase price.
Vehicles depreciate from the moment they leave the dealership. Actual cash value accounts for that depreciation, meaning a car bought for $32,000 two years ago might be valued at $21,000 when a total loss occurs. If you still owe $24,000 on a loan, that gap — $3,000 in this example — is your responsibility unless you carry gap coverage. Understanding ACV versus replacement cost is essential for anyone financing or leasing a vehicle.
Myth
Comprehensive coverage protects you from all types of damage, including collisions.
Fact
Comprehensive and collision are separate coverages that respond to different events — neither replaces the other.
Comprehensive coverage addresses losses caused by events outside your control while the vehicle is parked or in motion: theft, vandalism, fire, hail, flooding, and animal strikes are common examples. Collision coverage responds when your vehicle makes contact with another vehicle or object. If a tree branch falls on your parked car, comprehensive pays. If you back into a post, collision pays. Assuming one covers the other is a mistake that leaves gaps in protection.
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 — rideshare and delivery driving typically require a separate endorsement or commercial policy.
Standard personal auto policies are written for personal, non-commercial use. When a vehicle is used to generate income — whether through a rideshare platform or a delivery service — that use falls outside the scope of most personal policies. Driving for compensation without proper coverage can result in a denied claim. Rideshare companies generally provide some coverage during active trips, but there are coverage gaps between periods. Drivers using their personal vehicle for any income-generating purpose should review their policy terms and discuss options with their insurer.
Making Your Coverage Work for You
Once the myths are cleared away, a clearer picture of auto insurance emerges: it's a product with specific, defined protections — not a blanket guarantee. Knowing what each coverage type actually does is the foundation of any sound insurance decision. Our car insurance coverage types guide breaks down liability, collision, comprehensive, and more in plain terms.
Two coverage types that frequently cause confusion are comprehensive and collision. They're often sold together, but they respond to entirely different events. Understanding the difference can prevent you from assuming you're covered when you're not. Drivers who finance or lease a vehicle should also evaluate whether gap insurance makes sense — it addresses the gap between a payout and an outstanding loan balance after a total loss.
Credit score misconceptions extend well beyond insurance. If you want to understand how credit actually works and what moves the needle, credit score myths worth knowing is a useful companion read.
~85%
States allowing credit-based insurance scoring
Only a handful of states restrict or ban the use of credit-based insurance scores in auto rate calculations; drivers in most states are affected.
20%+
Average vehicle depreciation in year one
Most new vehicles lose a significant portion of their value in the first year, widening the gap between loan balance and actual cash value at total loss.