Key Takeaways
- Car color has no effect on your auto insurance premium — insurers don't track it.
- Minimum state-required liability coverage often leaves significant financial gaps.
- Comprehensive coverage does not protect against collision damage — each covers distinct events.
- Your credit history is a legitimate rating factor in most U.S. states.
- Older vehicles may still need full coverage depending on loan status or replacement cost.
- Filing a small claim can raise your premium more than paying the cost out of pocket.
Why Auto Insurance Myths Are Costly
Auto insurance is one of the most significant recurring costs of vehicle ownership, yet most drivers form their understanding of it through word of mouth, assumptions, and half-remembered advice. The result is a landscape filled with myths — some harmless, many expensive.
Acting on inaccurate beliefs can leave you dangerously underinsured after an accident, or prompt you to pay for coverage configurations that don't reflect your actual risk. Understanding what your policy actually does — and doesn't — cover is fundamental to making financially sound decisions. For a clear breakdown of how policies are structured, see our overview of what auto insurance actually covers.
Below, we address the most widespread myths that regularly lead drivers to make assumptions that cost them money.
Myth
Red cars cost more to insure because insurers charge a premium for the color.
Fact
Vehicle color is not a rating factor used by U.S. auto insurers. Your premium is unaffected by whether your car is red, white, or any other color.
This is one of the most persistent auto insurance myths in circulation. Insurers determine premiums based on factors such as the vehicle's make, model, body type, engine size, age, and safety record — along with driver-specific variables like driving history, location, and credit score in most states. Paint color appears nowhere in a standard rating algorithm. The myth likely persists because red sports cars are associated with fast driving, but it's the vehicle type and driver behavior that matter, not the color of the paint.
Myth
State minimum liability coverage is enough — it's the legal requirement, so it must be adequate.
Fact
State minimums set the legal floor, not a financially safe coverage level. Many minimum limits are low enough to leave significant out-of-pocket exposure after a serious accident.
State minimum liability requirements vary widely, and in many states the required limits — such as $25,000 per person for bodily injury — can be exhausted quickly in a serious collision involving medical treatment, lost wages, or a lawsuit. If damages exceed your policy limits, you are personally responsible for the difference. Financial professionals and insurance advisers commonly suggest limits that reflect your actual assets and income, not simply the minimum required by law. See our auto insurance glossary for definitions of liability limits and related terms.
Myth
Comprehensive coverage covers everything — it's the complete, all-inclusive policy option.
Fact
Comprehensive coverage only applies to non-collision events such as theft, weather damage, fire, and animal strikes. Collision damage requires separate collision coverage.
The term "comprehensive" is genuinely misleading. In insurance terminology, comprehensive coverage is a specific, limited coverage type that pays for damage to your vehicle caused by events other than a collision — such as hail, flooding, vandalism, theft, or hitting an animal. If you rear-end another vehicle or hit a guardrail, that falls under collision coverage, which is a separate policy component. Drivers who carry only comprehensive coverage and skip collision may be surprised to find their own vehicle damage is not covered after an at-fault crash. Our article on core types of auto insurance coverage explains the distinction in detail.
Myth
Your credit score has nothing to do with your car insurance rate.
Fact
In most U.S. states, insurers are permitted to use a credit-based insurance score as one factor in calculating your premium.
Insurance companies in the majority of states use credit-based insurance scores — which are related to but distinct from standard credit scores — as a predictive rating factor. Research used by the industry suggests a statistical correlation between certain credit patterns and the likelihood of filing a claim. A few states, including California, Hawaii, and Massachusetts, have restrictions or prohibitions on the use of credit in auto insurance rating. If you live in a state that allows it, maintaining a strong credit profile can have a measurable impact on what you pay. For a broader look at what shapes your rate, see the factors that drive your auto insurance premium.
Myth
Once your car is paid off or old, you no longer need full coverage.
Fact
Whether full coverage makes sense depends on your vehicle's current market value, your financial reserves, and whether you could absorb a total loss out of pocket.
Dropping collision and comprehensive coverage on an older vehicle can be reasonable if the car's market value is low and the premiums represent a poor return on the potential payout. However, it's a financial calculation, not an automatic rule. If you couldn't afford to replace your vehicle out of pocket following a total loss, maintaining physical damage coverage may still be worthwhile. Additionally, if you're still financing the vehicle, your lender will likely require collision and comprehensive coverage regardless of the car's age.
Myth
Filing a small claim won't affect your premium — that's what insurance is there for.
Fact
Filing a claim, even a minor one, can result in a premium increase at renewal that may exceed the value of what the insurer paid out.
Insurers track claims history and many apply surcharges following a filed claim, even when you were not at fault in some circumstances. For minor damage where the repair cost is only slightly above your deductible, paying out of pocket often makes more financial sense over a multi-year period. Before filing a claim, it's worth estimating the potential premium impact against the benefit received. This is a nuanced calculation, and practices vary by insurer and state — consulting your agent before filing on small incidents is a reasonable step.
How These Myths Create Real Financial Risk
Believing these misconceptions doesn't just result in wasted premiums — it can leave you personally liable for tens of thousands of dollars after an accident. Minimum-coverage drivers who assume they're adequately protected often discover the limits of their policy only at the worst possible moment. Our guide on coverage gaps that surface after an accident explores how these shortfalls typically play out.
Assumptions About Coverage Can Leave You Liable
Many drivers only discover the limits of their policy after an accident has already occurred — at which point adjusting coverage is no longer an option. Reviewing your policy before you need it, rather than after, is the only way to ensure it reflects your actual financial exposure. If you're unsure what your current policy includes or excludes, contact your insurer or a licensed agent to walk through the details.
Your premium is calculated using a range of factors — your driving record, location, vehicle type, and more. For a full explanation of how insurers arrive at your rate, see why your auto insurance premium costs what it does. And if you're deciding how to balance your deductible against your monthly payment, understanding the deductible-premium trade-off is a practical next step.
1 in 8
U.S. drivers estimated to be uninsured
According to the Insurance Research Council, roughly one in eight drivers on U.S. roads carries no auto insurance at all, which elevates risk for all motorists.
$15,000–$25,000
Common state minimum bodily injury limits per person
Many states set minimum liability limits in ranges that can be quickly exhausted by emergency medical treatment, reinforcing the case for coverage above the legal floor.
Misbeliefs about insurance also contribute to broader car ownership budgeting errors. If you want to review whether your overall vehicle costs are well-managed, budgeting mistakes that make car ownership more expensive is worth reading alongside this article.
This article is for general informational and educational purposes only and does not constitute personalized insurance, financial, or legal advice. Coverage terms, exclusions, and pricing vary by insurer, policy, and state. Always read your policy documents carefully and consult a licensed insurance agent for guidance specific to your situation.