Truth Or Myth? Auto Insurance Wives’ Tales You Can Do Without
According to the Insurance Information Institute (III), there are a number of myths about auto insurance that need to be dispelled. If you’ve fallen prey to misinformation about auto insurance, here’s your chance to get the straight skinny on the subject.
First on the list of insurance misinformation is the idea that the color of your vehicle has an effect on the price of your premium. Not so, says III, so don’t buy into the belief that a red car will cost more to insure than a vehicle of another color. Whether it’s red, green, silver or purple with yellow polka dots – your car’s hue doesn’t have a whit to do with figuring out your premium rate. Insurance companies base their rates on your vehicle’s model, age, make, engine size, and body type when deciding the figure to stick on your bill. Also figuring prominently in the pricing equation are factors like your age, credit report and driving record.
Another myth is that your insurance cost will rise as you get older. On the contrary, those over the age of 55 typically qualify for rate reductions if they attend a driving course. These ‘mature driving’ courses are offered through your local motor vehicle department, as well as through AARP and AAA. Retirees are also often eligible for reduced rates on their auto insurance. Sometimes these discounts can amount to 5% or more. That said, rates could go up after the age of 70, due to the fact that drivers of advanced age can be more prone to accidents.
Does your credit history matter when it comes to auto insurance rates? If you answered no, you’ll be surprised to find out that you’re wrong. Unbeknownst to most people, a credit score affects the rate an insurance company charges for your premium and people with bad credit histories are charged higher rates for auto insurance. According to the Federal Trade Commission, the difference in premiums is sometimes twice as high for people with bad credit than for people with good credit. Lawmakers aren’t happy with the fact that people are being penalized in this way and have made efforts to prohibit the practice of credit profiling for insurance purposes. So far, Hawaii, California and Massachusetts are the only states to have passed such laws.
Another insurance wives’ tale is that you’ll be covered if your vehicle is stolen, vandalized or damaged in a flood, fire or hurricane. This type of coverage is optional, so if you’ve gotten your state minimum liability coverage, you won’t get any help from your insurer. Comprehensive and collision are the types of coverage you’ll need if you want to be insured against theft, vandalism, or natural disasters like flood, hurricane, hail or earthquakes.
A commonly held myth about auto insurance is that your state’s mandated minimum provides adequate coverage. The fact of the matter is that many accidents cost far above the minimum limits. If you only carry the minimum liability coverage, you’re putting yourself at risk of having to pay a significant sum out of pocket in the event that you’re found at fault in an accident. Industry experts recommend carrying at least $100,000 in bodily injury insurance per person and $300,000 per accident.
If a friend borrows your vehicle, will their insurance cover them if they have a crash, or will the coverage come from your insurance? Insurance practices vary from state to state, but in many states, because it’s your vehicle, your insurance will be required to cover the accident. That means your insurance rate will probably go up, even though you weren’t at fault for the crash or even in the vehicle at the time.
Some people think that military personnel are charged more for auto insurance than civilians. Not true. In fact, military personnel and their families often qualify for discounts. In order to qualify for discounts, they need to provide proof of military service, including rank and dates of service.
The final myth regards business use of a vehicle. If you’re self-employed and using your vehicle for business purposes, you need to notify your insurer so they can include business use in your policy. They’ll want to know how often you’re using your vehicle for business and how many miles it’s being driven while in use. Business auto insurance is often higher than that for personal use. If employees are driving your vehicle or vehicles, make sure they have good driving records so you can keep your insurance costs down.