Auto Insurance Myths That Cost Drivers Money
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In this article
Red cars cost more to insure. Your credit score doesn't matter. These common beliefs are wrong — and believing them can be costly.
Key Takeaways
- Vehicle color has no effect on your auto insurance premium whatsoever.
- In most U.S. states, insurers legally use credit-based scores to set your premium.
- Minimum liability coverage protects other drivers — not your own vehicle or finances.
- Your insurer must be notified of regular business use of your personal vehicle.
- Comprehensive coverage, not collision, pays for theft and weather-related damage.
Why Auto Insurance Myths Are Especially Costly
Misinformation about auto insurance doesn't just create confusion — it leads to real financial harm. Drivers who believe these myths may skip necessary coverage, fail to disclose relevant information, or overpay without understanding why. Auto insurance is a legally required product in nearly every U.S. state, yet most Americans have limited formal guidance on how it actually works. That gap is where myths take root.
The misconceptions below are among the most common and consequential. Each one either causes drivers to carry inadequate protection or prevents them from taking steps that could lower their costs. For context on how broader vehicle ownership decisions intersect with common misunderstandings, see car ownership myths that cost money.
Myth
Red cars cost more to insure because insurers view them as driven more aggressively.
Fact
Vehicle color is not a rating factor for any major U.S. auto insurer. Premiums are based on the car's make, model, body type, engine size, age, and safety record — not its paint.
This myth is remarkably persistent, but there is no mechanism by which it could be true. Insurers typically do not even ask for color when you apply for a policy. What they do evaluate are factors tied to real risk: a sports car with a high-horsepower engine costs more to insure than a family sedan of the same age, regardless of color. The Vehicle Identification Number (VIN) gives underwriters all the vehicle data they need, and color is simply not part of that picture.
Myth
Your credit score has nothing to do with car insurance — that's only a lending thing.
Fact
In most U.S. states, insurers use a credit-based insurance score — distinct from a lending credit score but derived from similar data — as one factor in setting premiums.
Research cited by the Federal Trade Commission has found a statistical correlation between credit-based insurance scores and the likelihood of filing claims. As a result, insurers in most states are permitted to factor it into pricing. A lower score can meaningfully raise your premium. California, Hawaii, Massachusetts, and Michigan are notable exceptions where this practice is restricted or prohibited. If you live in a state where it applies, improving your credit profile over time can translate directly into lower insurance costs. For more on how credit data affects everyday financial decisions, see common credit score myths.
Myth
State minimum liability coverage is enough — you're legal, so you're protected.
Fact
Minimum liability coverage meets legal requirements but covers only damage or injuries you cause to others. It does not pay for your own vehicle repairs, your medical bills, or costs that exceed the policy limits.
State minimums are often quite low. A serious accident can generate medical and property costs that far exceed a 25/50/25 policy (meaning $25,000 per person, $50,000 per accident in bodily injury, and $25,000 in property damage). Once those limits are exhausted, your personal assets — savings, home equity, wages — can be targeted in a lawsuit. Minimum coverage is a floor set by law, not a recommendation for adequate protection. Understanding how insurers price and structure policies is covered in more depth in why your premium is what it is.
Myth
If your car is stolen, your collision coverage will pay for it.
Fact
Theft is covered under comprehensive coverage, not collision. Collision only applies to damage from an accident involving another vehicle or object.
Collision and comprehensive are separate optional coverages, and mixing them up can leave drivers unpleasantly surprised after a loss. Comprehensive covers events outside your control: theft, vandalism, fire, flooding, hail, and animal strikes. Collision covers damage to your own vehicle when you hit something. If you only carry liability and collision — without comprehensive — a stolen car is an uninsured loss. Drivers who financed or leased their vehicle are typically required by the lender to carry both.
Myth
Using your personal car occasionally for work deliveries or rideshare driving is fine under a standard policy.
Fact
Standard personal auto policies generally exclude commercial or rideshare use. Driving for pay without the proper endorsement or policy can result in a denied claim.
Insurers price personal policies on the assumption the vehicle is used for commuting and personal errands. Regular delivery driving or rideshare work changes the risk profile significantly. Most rideshare companies provide some coverage while you're matched with a passenger, but gaps exist — particularly during the period when the app is on but no ride is accepted. If you use your vehicle for any income-generating purpose, disclose it to your insurer and ask about a commercial use endorsement or a rideshare policy add-on. Failing to disclose can void coverage when you need it most.
Myth
Your insurance automatically covers other people who drive your car.
Fact
Coverage typically follows the vehicle, not the driver — but there are important exceptions, and regular unlisted drivers can complicate or void a claim.
In most states, if you lend your car to a licensed friend for an occasional trip, your insurance is generally primary in the event of an accident. However, if someone drives your car regularly and is not listed on your policy, your insurer may deny coverage or non-renew your policy. Household members who drive regularly should always be listed. Additionally, some policies have explicit exclusions for drivers you've specifically forbidden from using the vehicle. Read your declarations page carefully and ask your agent about permissive-use rules specific to your policy.
What You Can Actually Control to Lower Your Premium
Once you understand what insurers actually measure, you can take targeted steps. Maintaining a clean driving record is the single most direct lever most drivers have. Beyond that, credit health matters in most states — consistent, on-time bill payment and keeping credit utilization low will improve your credit-based insurance score over time.
~$2,000+
Average annual U.S. auto insurance premium
According to the National Association of Insurance Commissioners, average auto insurance expenditure has risen steadily, exceeding $1,000 per vehicle in most states, with full-coverage policies in high-cost states often running considerably higher.
46 states
States permitting credit-based insurance scoring
The majority of U.S. states allow insurers to factor credit-based insurance scores into auto premium calculations; California, Hawaii, Massachusetts, and Michigan are the primary exceptions.
30%+
Premium difference tied to credit score tier
Industry data suggests drivers with poor credit can pay substantially more than those with excellent credit for equivalent coverage, though exact differences vary by insurer and state.
Shopping your policy at renewal — comparing quotes from multiple carriers for the same coverage terms — is one of the most straightforward ways to check whether you're being priced fairly. Bundling home or renters insurance with your auto policy often generates a discount, as does raising your deductible if you have sufficient savings to cover it out of pocket. The key is making changes based on how insurance is actually underwritten, not on assumptions. For guidance on navigating major vehicle decisions alongside insurance considerations, the buying a car hub covers the full picture.
This article is for general informational purposes only and does not constitute personalized insurance, financial, or legal advice. Coverage terms, rating factors, and regulations vary by state and insurer. Consult a licensed insurance agent or adviser for guidance specific to your situation.
Author
Autos & Vehicles Editorial Team
Autos & Vehicles Editorial Team is the collective byline for our editorial team and contributor network. Articles published under this byline or an editorial pen name are researched, written, and reviewed according to our editorial standards for clarity, consistency, and independence before publication.
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