Don’t be fooled by these common myths about car insurance. Find out exactly what your policy covers.
- Everyone needs a car insurance policy
- Many people don’t know what their policy covers or how it works
- Some common misconceptions make uncovering the truth challenging
- Busting these myths ensures you understand your coverage
How much do you really know about your car insurance policy? Maybe not as much as you think. Many people believe that their policy covers damage as well as personal liability, but that’s not necessarily the case.
The reality is that there are probably limitations to what your policy covers, and if you don’t understand them, you could find yourself in a tough spot if your car is damaged or stolen.
Here’s a look at some common myths about car insurance so you can make sure your policy provides all the coverage you need.
Myth #1: Comprehensive and collision insurance covers everything
You might believe that adding comprehensive and collision insurance to your standard policy covers you in every possible scenario. The truth is that while these insurance options offer protection in most situations, they don’t necessarily cover everything.
For instance, if your vehicle is stolen with valuable personal items inside, your policy probably won’t cover them. You could also run into problems if you let someone else drive your car and it ends up in an accident. The exact coverage you have depends on your individual policy, so make sure you discuss the inclusions and exclusions with your provider before believing this myth.
Myth #2: Your credit score doesn’t affect your car insurance rates
You might have heard that only things like driving history, age, car value, policy choices, and location influence your auto insurance rates. This myth might make you believe your credit score doesn’t matter, but that simply isn’t the case.
The reality is that your credit score does matter, at least in part. Insurance agencies can collect credit-based insurance scores to help underwrite your policy. The idea is that your financial history can predict your likelihood of filing a claim in the future. Poor credit can make you riskier to insure, and insurance companies want to account for that risk.
The good news is that the opposite is also true. A good credit rating can save you money on insurance. In fact, data shows that credit scores actually reduce car insurance premiums 57.4% of the time. Conversely, 23.4% of drivers see their premiums increase, and the rest experience no change at all. So while credit score isn’t the only factor that determines your rates, you don’t want to completely ignore its impact.
Myth #3: Minimum liability coverage is always enough
In New York state, the minimum limits for third-party liability are $25,000 for bodily injury and $50,000 for death sustained by another driver or occupant. This minimum also covers $50,000 for bodily injury to two or more people, $100,000 for two or more deaths, and $10,000 for property or vehicle damage.
These minimums are part of the state’s basic no-fault auto insurance, but you can be sued if you’re responsible for damages beyond those limits. The results could be catastrophic for your finances because an accident’s expenses can easily go beyond those amounts. To fully protect yourself in case of a lawsuit, experts recommend carrying at least $100,000 in liability coverage for injuries, $300,000 for deaths, and $100,000 for property damage.
Myth #4: Your insurance will cover a stolen or totaled car’s full value
On the surface, it makes sense that your insurance company would reimburse you for the full value of your vehicle if it’s stolen or damaged irreparably. However, the process is slightly more complicated than simply cutting you a check for what you paid for the car. The amount you receive depends upon an assessment.
As anyone who’s ever tried to trade in a car knows, your vehicle depreciates the second you drive it off the lot. It isn’t worth as much today as yesterday because it has more miles and wear and tear on it. Your insurance company uses a formula to determine your car’s current value if it’s totaled or stolen, and that’s the amount you would receive as reimbursement.
You’ll also have to contend with the difference between the car’s actual cash value and its replacement cost. Insurance companies offer an amount based on the actual cash value of the vehicle, which is how much someone would be willing to pay for it if it hadn’t been in an accident.
A solution to this problem is replacement cost insurance. This add-on ensures that you receive enough to pay for a new car in the same class as the vehicle you wrecked, so you won’t end up with a lesser vehicle after an accident.
Myth #5: Personal auto insurance covers business use of your car
You might have heard that using your personal vehicle for business purposes is perfectly fine, especially if you’re self-employed. However, there could be provisions in your policy that prohibit you from doing so.
In fact, most personal auto insurance policies exclude business use. So, if you’re using your personal vehicle to deliver food, drive for Uber, or even run errands for your boss on company time, you might be in for a surprise if you’re in an accident. Fortunately, you can top your can insurance policy up with some optional coverage to protect yourself in this scenario.
Understanding car insurance myths
Learning more about these common misconceptions could change how you view your car insurance policy. Use this information to ask your insurance agent questions when discussing your coverage options to ensure that you have all of the protection you need.
At NICRIS, we pride ourselves on the relationships we create with our clients, helping them find the right insurance products to protect themselves and their finances. Contact us today to schedule an appointment for a personalized car insurance review or to get a quote.