Key Takeaways
Why Auto Insurance Myths Are Expensive
Auto insurance is one of the largest recurring costs of vehicle ownership, yet most drivers choose their coverage based on gut instinct, half-remembered advice, or things they've heard repeated so often they assume they must be true. The problem: several of the most common beliefs about how insurance works are simply wrong — and acting on them can mean paying too much, carrying the wrong coverage, or being blindsided after an accident.
Understanding what your policy actually covers is the first step. But it's just as important to clear out the misinformation that shapes how drivers shop for — and use — their coverage. Here are the myths worth examining.
Myth
Red cars cost more to insure because insurers view them as higher risk.
Fact
Insurers do not consider vehicle color when calculating premiums — it simply isn't a rating factor.
This is one of the most persistent auto insurance myths in the U.S., but no major insurer uses paint color as a pricing variable. What actually affects your premium includes the vehicle's make, model, body type, engine size, age, safety ratings, and theft statistics for that specific vehicle. A red compact sedan and a white one of the same year and trim level will carry identical base rates.
Myth
Once your car is paid off and older, you can drop all coverage except the state minimum liability.
Fact
Dropping comprehensive and collision coverage on an older vehicle is a financial gamble that doesn't always pay off.
Whether it makes sense to drop physical damage coverage depends on the vehicle's current market value, your emergency savings, and your risk exposure — not just its age. A vehicle worth $8,000 that gets totaled in a flood or stolen represents a significant out-of-pocket loss if you have no comprehensive coverage. Run the numbers: compare the annual premium cost against the vehicle's value and your ability to absorb the loss before making this decision.
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 factor in setting premiums.
Research by the Federal Trade Commission has found that credit-based insurance scores are predictive of claim likelihood, which is why most states permit their use. A lower credit score can meaningfully raise your premium, while improving your credit over time may reduce it. California, Hawaii, Massachusetts, and Michigan are among the states that restrict or prohibit this practice — but in the majority of states, your credit history is a legitimate pricing factor worth understanding.
Myth
One at-fault accident means your insurer will cancel your policy.
Fact
A single at-fault accident typically results in a rate increase, not cancellation — though repeated claims can eventually affect insurability.
Insurers generally don't cancel policies over a single incident, especially if you have a clean prior record. What's more likely is a surcharge — an added cost applied at renewal that reflects the increased risk you represent. Accident forgiveness programs, available through many insurers, may protect first-time offenders from a rate increase entirely. Policies are more likely to be non-renewed after multiple at-fault claims within a short window, or after serious violations like DUI.
Myth
The state minimum liability coverage is enough to protect you financially.
Fact
Minimum required coverage is often far below what a serious accident can cost, leaving you personally liable for the remainder.
State minimums vary widely — some states require as little as $15,000 in bodily injury liability per person. A multi-vehicle accident involving medical treatment, lost wages, and legal costs can easily exceed that limit by tens of thousands of dollars. Anything above your policy limit comes out of your pocket directly. Financial planners and insurance professionals generally recommend carrying liability limits well above state minimums, particularly if you have assets to protect. See how the core coverage types work to evaluate what limits make sense for your situation.
Myth
Your personal auto policy covers you when using your car for deliveries or rideshare driving.
Fact
Standard personal auto policies typically exclude commercial use — rideshare and delivery drivers need additional or specialized coverage.
If you drive for a rideshare platform or deliver goods using your personal vehicle, your standard personal policy likely won't cover accidents that occur during those activities. Most rideshare companies provide some coverage during active trips, but gaps exist — particularly during the period when the app is on but no ride has been accepted. Rideshare endorsements or commercial-use policies are available through many insurers and are worth exploring if you use your vehicle for income.
What These Myths Actually Cost You
Misinformation around auto insurance doesn't just lead to awkward conversations — it leads to real financial gaps. Drivers who drop comprehensive coverage on older vehicles to save a few dollars a month may face a $5,000–$15,000 repair or replacement bill after a flood or theft with no recourse. Drivers who assume minimum liability coverage is adequate may discover after a serious crash that they're personally responsible for damages far beyond policy limits.
~$2,000+
Average U.S. annual auto insurance premium
According to data compiled by the National Association of Insurance Commissioners, the average annual auto insurance expenditure in the U.S. has risen steadily over recent years.
49 of 50
States requiring auto liability insurance
New Hampshire is the only state without a mandatory insurance law, though drivers there must still demonstrate financial responsibility if involved in an accident.
Up to 20%
Potential premium variation between insurers
The Insurance Information Institute notes that premium quotes for the same driver and vehicle can vary substantially between companies, making comparison shopping worthwhile.
The same applies to shopping habits. Drivers who believe their rates are fixed — or that all insurers price identically — often never compare quotes, missing meaningful savings. Insurers use different weightings for factors like credit history, annual mileage, and claim history, so rates for the same driver can vary significantly between companies. Reviewing your insurance annually alongside other ownership costs is a straightforward habit that pays off.
Don't Set Coverage and Forget It
Major life changes — moving to a new state, adding a teen driver, buying a new vehicle, or changing how much you drive — can significantly affect the coverage you need. Reviewing your policy at each renewal, rather than auto-renewing without a second look, helps ensure your coverage still fits your situation and that you're not paying for options you no longer need or missing ones you do.
If you've been operating under any of these myths, you're not alone — but now is a good time to pull out your declarations page and compare what you're carrying against what you actually need. For a closer look at the legal and financial consequences of under-coverage, see what uninsured driving actually costs.
This article is for general informational purposes only and does not constitute insurance or financial advice. Coverage rules, pricing factors, and regulations vary by state. Consult a licensed insurance professional for guidance specific to your situation.