Think you know what you need to know about car insurance? There are so many myths regarding this important topic that it’s hard to narrow them down. We will focus on a half-dozen of them that can cause you economic harm if you do not understand them.
Many myths are related to how insurance rates are set – assumptions that sports cars, red cars, etc. cost more to insure than other vehicles. There are certain makes and models that cost a little more to insure based on risk factors and repair costs – and the costlier your car is to replace if totaled, the higher your premiums will be -- but typically, your driving behavior has more to do with your rates than the car you drive.
These six myths have more to do with mishaps and your related coverage – or misunderstanding of it.
- Thieves Prefer New Cars – Cars are often stolen to be dismantled and sold as untraceable parts, and the demand is going to be higher for parts for used cars. There are more of them on the road, and more that will need repair. Moreover, advances in theft control on newer cars make older cars easier to steal. Popular older models such as Honda Accords and Toyota Camrys often top the list.
Remember that you need comprehensive coverage to be insured against theft; liability alone is not sufficient.
- Your Car Will Be Paid Off If It Is Totaled – The amount you are paid for a totaled vehicle depends only on its cash value at the time of the accident. It is completely independent on how much you owe. Depreciation is significant in the first years of ownership, so during that period it is likely you will owe more than you will receive in cash value. You can buy "gap insurance" to make up the difference if you choose.
- If Your Car is Stolen/Damaged, Insurance Pays for A Rental – It may, it may not – but rentals are not automatically included. Typically, rental coverage is added separately to your premium and provides a rental car up to certain time or dollar limits.
- Business Use of Your Personal Car is Covered – You need a specific policy covering business use of your personal vehicle, or some addition to your personal auto policy spelling out coverage, conditions and limitations for business use. Business use of your personal vehicle introduces greater risks and higher liability, in part because you are driving additional miles each month.
- New Cars Are Automatically Covered Under Existing Policies – Purchase of a new car means new risks, different repair costs, and a host of new factors; therefore a new policy is required. Check with your insurer to find out how long you have to notify them of a new car purchase. Otherwise, you may be driving without coverage while thinking everything is just fine.
- You Have a 30-Day Grace Period If You Are Late Paying Your Bill – There will be some form of notification period before cancellation for lack of payment, but requirements vary by state. The period could be as short as ten days. Do not risk losing your coverage through delaying your payment.
There are plenty of other car insurance myths, some arguably as important as these to debunk. The real point is that you shouldn't accept any car insurance myths at all.
Take time to educate yourself about your auto insurance policy, and if there is something you don't understand, ask your agent or insurance company. There are plenty of online sources that can also help you. Be educated and well insured, and enjoy the peace of mind that comes from not having to worry about your auto insurance coverage.