4-Star Myths about Insurance

#1: Color Determines Costs

This is simply and completely untrue. Nobody cares about the color of your car. You won't even be asked about it when you get quotes!

As for the old tale that police will pull you over more if you have a red car, well, that depends on the police officer I suppose.

So what does determine your premiums?

* Driving Record
* Age
* Gender
* Collision History
* Vehicle Type
* Make, Model, and Mileage

The other factors vary from insurer to insurer, and there may be thousands.
#2: Getting the State Minimum Coverage Saves You Money

The less coverage you buy, the lower your premiums cost; that much is true. However, as a consumer, you should understand that insurance is meant to SAVE you money. It saves you thousands of dollars if you are in a collision, it makes sure you can pay your medical bills (and those of others), and it makes sure you don't have to forfeit your future earnings in a law suit. Insurance can save you tens of thousands of dollars in a collision, but only if you get the right amount.

The right amount of coverage for you has nothing to do with the state minimum. Choose your level of coverage based on the assets you can't afford to lose: your home, your car, your savings, your portfolio, and so forth.

Some people need only the state minimum: the people who have great health insurance, nothing to lose, and who do not plan on fixing their car if it is involved in a collision.
#3: New Cars Cost More to Insure since They Are Stolen More

Neither of these are really true. When it comes to insuring cars, there is a constant balance being struck between factors. Two of the factors are theft rates and driver/passenger safety.

Used cars are at a disadvantage in terms of insurance costs on both of these fronts.
Theft rates are higher on older vehicles because thieves have had time to develop methods to break the security devices and take the car. Newer cars are simply harder to steal because thieves don't have the tools.

Newer cars are also more up-to-date with modern safety regulations, meaning they are generally better at protecting the driver and passengers in the vehicle. Used cars are usually not quite as good at protecting their contents.
#4: If Your Car Is Wrecked or Stolen, Your Car Insurer Will Pay for a New Car

There are two major points here:

1. Your insurer will only pay up to your maximum car insurance coverage level.
If you have $20 thousand of coverage and you just totaled a $50 thousand vehicle, you are not going to get enough for a new car. You are going to get exactly $20 thousand, and not a cent more.

2. You will only get the value of the car at the moment before you crashed, not the sticker price of a new car.
Cars lose one-third of their value when you drive them from the dealership. You will at best get paid the bluebook value of a car at that age and mileage by your car insurance.