Which Insurance Myths Are Quietly Costing You Money?

Insurance is full of "everybody knows" wisdom that turns out to be completely wrong. Some of these myths are harmless. Others are quietly costing you money — sometimes a lot of it.

Let's debunk the most common ones.

Myth 1: Red Cars Cost More to Insure

This is the granddaddy of insurance myths. Everyone has heard it. It's also completely false.

Insurance companies don't ask about your car's color. They ask about make, model, year, trim level, engine size, safety features, and where you park it. Color is irrelevant.

What actually affects your rate:

The car's repair cost
Theft rates for that model
Safety ratings
Engine size and horsepower
Likelihood of being driven aggressively (sports cars rate higher)

So buy the red car. Buy the orange car. Buy the purple car. Your premium won't budge.

Myth 2: Your Credit Score Doesn't Affect Your Insurance

It does. In most states, dramatically.

Insurers in 47 states (California, Hawaii, Massachusetts, and Michigan are the exceptions for auto) use a "credit-based insurance score" — similar to your credit score but optimized for predicting insurance claims. Studies have consistently shown that people with lower credit scores file more claims, so insurers price accordingly.

The cost difference can be enormous. A driver with poor credit can pay 50-100% more than the same driver with excellent credit, all else equal.

What to do:

Know your credit score and work to improve it
Pay bills on time
Keep credit card balances low
Don't open unnecessary credit lines
Shop around — some insurers weight credit less heavily than others

If you're in California, Hawaii, Massachusetts, or Michigan, your credit doesn't affect auto insurance — but it can still affect home insurance in many of these states.

Myth 3: Comprehensive Coverage Means "Covers Everything"

The name is misleading. Comprehensive insurance is actually pretty narrow.

What comprehensive covers:

Theft
Vandalism
Fire
Falling objects (tree branches, hail)
Animal collisions (hitting a deer)
Flood damage to your car
Glass damage
Civil disturbance damage

What comprehensive doesn't cover:

Collisions with other vehicles (that's collision coverage)
Mechanical breakdowns
Wear and tear
Damage from running off the road
Anything that's not specifically listed as a covered peril

People often think "I have full coverage, I'm good for anything." Not true. "Full coverage" usually means liability + collision + comprehensive — and there are still plenty of gaps.

Myth 4: Older Cars Don't Need Insurance

You always need at least liability insurance — it's required in nearly every state. The myth is more nuanced: do older cars need full coverage?

The traditional rule of thumb: drop collision and comprehensive when your car's value drops below 10x your annual premium for those coverages. If you'd pay $600/year for collision + comprehensive on a car worth $4,000, you might be better off self-insuring.

But it depends on:

How quickly you can replace the car if totaled
Your tolerance for losing the asset
Whether you have an emergency fund

Don't drop coverage on impulse. Run the math.

Myth 5: Filing Any Claim Will Skyrocket Your Rates

It's more nuanced than that.

Claims that typically don't raise rates:

Glass-only claims (windshield repair) in many states
Comprehensive claims for theft or weather (not your fault)
Small claims under your insurer's "forgiveness" threshold

Claims that typically do raise rates:

At-fault accidents
Multiple claims within 3-5 years
Claims involving injury

Some insurers offer accident forgiveness for your first at-fault accident. Others give you a pass on small claims. Knowing your insurer's policy helps you decide whether a claim is worth filing.

That said, the broader principle holds: don't file small claims. If the damage is barely above your deductible, paying out of pocket usually saves money long-term.

Myth 6: My Landlord's Insurance Covers My Stuff

It doesn't. At all.

Your landlord's insurance covers the building structure. Your stuff — furniture, electronics, clothing, dishes — is your responsibility. If there's a fire or theft, your landlord's policy pays $0 toward your losses.

This is why renters insurance exists. And it's cheap — average $15-$20/month — for $30,000+ in personal property coverage and $100,000+ in liability protection.

If you rent and don't have renters insurance, you're walking around uninsured. Don't wait for a disaster to learn this lesson.

Myth 7: My Health Insurance Will Cover Me in a Car Accident

Maybe. Partially. With complications.

Health insurance typically covers your medical expenses regardless of how you're injured — but car accidents involve auto insurance, health insurance, and potentially the other driver's insurance. The interaction is messy:

If you're at fault, your health insurance pays your medical bills (after your auto insurance medical payments coverage runs out)
If the other driver is at fault, their bodily injury liability pays — but only after a settlement
Health insurance often demands reimbursement (subrogation) when they discover the injury was from a car accident
High deductibles and copays can leave you with thousands in out-of-pocket costs

PIP (Personal Injury Protection) and Medical Payments coverage on your auto policy fill these gaps. They're typically inexpensive ($30-$100/year) and can save you from huge out-of-pocket costs after an accident.

Myth 8: Insurance Companies Are All The Same

Wildly false. Insurance companies vary dramatically in:

Pricing: The same driver can pay $1,200 with one insurer and $2,400 with another
Claims handling: Some pay claims quickly and fairly; others fight every dollar
Coverage details: Two policies labeled "comprehensive" can have different exclusions
Customer service: Some have great apps and 24/7 support; others make you wait on hold
Financial stability: Some insurers have strong balance sheets; others operate on thin margins

This is why shopping around matters so much. The "best" insurer depends on your specific situation — but assuming they're all the same costs you money. Tools like Truvo make comparison fast so you can actually see the differences instead of guessing.

Myth 9: My Insurance Goes Up Every Year No Matter What

Not necessarily. Rates can go up due to:

Inflation in repair costs
More claims in your area
Statewide rate filings
Loss of a discount
Changes to your situation (new claim, ticket, etc.)

But rates can also go down. They go down when:

You age into a lower-risk bracket
You shop around and switch carriers
Your credit improves
You move to a lower-cost area
You add new discounts

The key is to not just accept rate increases. Shop every 1-2 years. If your renewal goes up significantly, that's a signal to comparison shop, not to just pay it.

Myth 10: Bigger Insurance Companies Are Always Better

The big national insurers (State Farm, Geico, Progressive, Allstate) have massive marketing budgets and brand recognition. But "big" doesn't always mean "best."

Regional and mutual insurers like Erie, Auto-Owners, Amica, and NJM often:

Offer lower rates in their regions
Have higher customer satisfaction scores
Pay claims faster
Provide more personalized service

The trade-off: smaller geographic availability and fewer office locations. But for many customers, the savings and service make smaller insurers a better choice.

The Bottom Line

Insurance is full of folklore that isn't true. Some of these myths are harmless ("red cars cost more"). Others quietly cost people thousands of dollars over a lifetime ("I don't need renters insurance" or "I should never file a claim").

The cure is curiosity. Question what you've heard. Read your policy. Shop around. The more you actually understand how insurance works, the more money you keep in your pocket.