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Auto Insurance Information Center

March 2013

Car Insurance Myths Busted

Even before you begin driving, you hear all kinds of stories related to car insurance: people with sports cars pay more; people who drive red or yellow cars pay more; insurance companies charge what they want, and so on.

Car Insurance Myths Busted

After a while it can get hard to distinguish the truth from all of the misinformation you receive. We've collected some of the most popular ones, and put them to the test.

Rates always increase after a speeding ticket.

Not necessarily. In many instances, your rate will not go up because of a single ticket. Other factors that affect your rate include the number of points that the state Department of Motor Vehicles assigns to the ticket, whether you've had prior tickets and how long you've been with your auto insurance company.

My driving history is what determines what I pay for insurance.

Yes, your driving history matters, along with numerous other factors. These include your age, the type of car, the intended use of the car and theft rate in your area. Discounts also play a role in determining what you pay. For example, if you are a student, getting good grades can help reduce your insurance premiums. Or completing a defensive driver course can help with discounts.

If my car is totaled, my car insurance will pay off what I owe on my loan or lease.

When your car is totaled, your auto insurance policy does not necessarily pay off what you owe. It will pay you the actual cash value of your car, minus your deductible. Actual cash value is the amount your car was worth before the accident, factoring in depreciation. If this amount is less than what you owe on your loan or lease you are responsible for the difference.

Note: A total loss is declared when the repair costs exceed a certain percentage of the car's value, usually if the repair costs exceed between 60 to 80 percent of the car's value. At that point, the insurance company will offer you the actual cash value of your car, which may or may not be enough to pay off your loan.

If someone borrows my car and has an accident, their insurance will cover any costs.

This statement is incorrect. In case of an accident, car insurance follows the car - not the driver. So if you lend your car to a relative or friend, you could be liable if an accident occurs, even if the person you lent your vehicle to has coverage - even great coverage. Here's something to think about: If you lend someone your vehicle, whether for a few hours or a few days, you're also lending your car insurance. So if it's your car in the accident, your insurance policy is the primary insurance - regardless of who was driving. However, if your policy limit isn't enough to cover the damages, the insurance of the person who was driving your car would be next in line to cover the costs.

My rates will decrease if I do not get any tickets or not involved in any accidents.

This is not always true. While it is far better to remain ticket- and accident-free to help lower your insurance rate, over time other factors can cause the rate you pay to increase, even if you are accident- and ticket-free. These factors include national or regional trends such as increasing costs to repair vehicles, rising hospital bills and increases in accident-related lawsuits.

What's the verdict?

As you can see, what you hear and what is true are not always the same. And for those of you with red cars, rest easy: it is no more expensive to insure a red car compared to another of the same make in a different color. What does matter are speeding tickets or at-fault accidents, so slow down and drive safely. And think twice before loaning your vehicle out, as it's you that could end up paying for it.

Please note that this information is provided for illustrative purposes. Actual policy language and filed rate plan will determine what will affect your rates and can vary by company.

Sources: cars.com; insure.com; roadtripamerica.com

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