Insurance is complicated, and myths spread faster than facts. Believing these common misconceptions could cost you thousands of dollars or leave you with no coverage when you need it most.
Myth 1: “Red Cars Cost More to Insure”
The Truth: Your car’s color has absolutely zero impact on insurance rates. Insurers don’t even ask about color when quoting premiums.
What Actually Matters:
- Make and model
- Engine size and horsepower
- Safety features and crash test ratings
- Theft rates for that vehicle
- Cost to repair
- Your driving record and location
A red Honda Civic costs the same to insure as a blue one. However, a sports car costs more than a sedan regardless of color because they’re driven faster, stolen more often, and expensive to repair.
Why This Myth Persists: People associate red with speed and aggression, assuming insurers do too. They don’t.
Myth 2: “Your Credit Score Doesn’t Affect Insurance Rates”
The Truth: In California and most states, insurers absolutely use credit-based insurance scores to determine premiums.
The Reality:
- Studies show correlation between credit scores and claim frequency
- Poor credit can increase your premium by 20 to 50%
- Improving credit can significantly reduce insurance costs
- California limits but doesn’t prohibit credit usage
Important Note: Checking insurance quotes does NOT affect your credit score. Insurers use soft pulls that don’t impact credit.
Take Action: If you have poor credit, ask about carriers that weight credit less heavily, and work on credit improvement for long-term savings.
Myth 3: “Minimum Coverage Is Enough”
The Truth: California’s minimum requirements ($15,000/$30,000/$5,000) are dangerously inadequate.
The Math:
- Average ER visit: $2,500
- Average hospital stay per day: $3,000+
- Average new car: $48,000+
- Average injury settlement: $50,000 to $500,000+
If you cause an accident with serious injuries or damage expensive vehicles, minimum coverage will be exhausted almost immediately. You’ll be personally liable for hundreds of thousands in damages.
Reality Check: Minimum coverage protects the other person’s assets, not yours. Adequate coverage protects YOU.
Recommendation: Carry at least $100,000/$300,000/$50,000, plus an umbrella policy.
Myth 4: “Older Cars Don’t Need Comprehensive and Collision Coverage”
The Partial Truth: This isn’t exactly a myth. It depends on your car’s value and your financial situation.
The Guidelines:
- If your car is worth less than $3,000 to $4,000, consider dropping these coverages
- Calculate: annual premium + deductible vs. car’s value
- If premium + deductible exceeds 50% of car’s value, reconsider the coverage
The Catch: You must have funds to replace the car if you drop coverage. If a $4,000 car is totaled and you can’t afford to replace it, having paid $800 annually for coverage seems worth it in hindsight.
What to Keep: ALWAYS maintain liability coverage regardless of your car’s age. This protects others and your assets from lawsuits.
Myth 5: “Your Homeowners Policy Covers All Water Damage”
The Truth: Water damage coverage is extremely complicated with many exclusions.
What’s Typically Covered:
- Water from burst pipes
- Roof leaks from sudden storm damage
- Water from firefighting efforts
What’s NOT Covered:
- Flood damage from external water sources
- Sewer backup (unless you have this endorsement)
- Seepage through foundation
- Damage from lack of maintenance
- Gradual leaks
Real Example: Your washing machine supply line bursts (covered). Heavy rain floods your home (not covered without flood insurance). Your basement seeps water during rain (probably not covered).
Take Action: Purchase flood insurance if you’re in any risk area, and add sewer backup coverage ($50 to 100 annually).
Myth 6: “You Can’t Get Insurance After Being Canceled”
The Truth: You can get insurance after cancellation, but it will be more expensive and finding coverage will be harder.
The Reality:
- Cancellation for non-payment is less serious than fraud or misrepresentation
- Some carriers specialize in higher-risk applicants
- You may need to use assigned risk pools initially
- After 3 to 5 years of clean history, you can return to standard markets
The Catch: Cancellation notices and denials stay in industry databases. Future insurers will see them and factor them into underwriting.
Prevention: Never let policies lapse. If you’re struggling with payments, contact your insurer before cancellation. They often offer payment plans.
Myth 7: “Business Use of Your Personal Car Is Covered”
The Truth: Using your personal vehicle for business purposes may void your personal auto insurance coverage.
What’s Covered: Commuting to a regular workplace is usually fine.
What’s NOT Covered:
- Rideshare driving (Uber, Lyft) without specific endorsement
- Delivery services (DoorDash, Amazon Flex)
- Transporting people or goods for compensation
- Sales calls or visiting clients
- Any commercial use of your vehicle
The Danger: If you have an accident while doing business activities, your claim could be denied entirely, leaving you personally liable for all damages.
Solution: Tell your insurer if you use your vehicle for business. You’ll need either an endorsement or commercial auto policy.
Myth 8: “Your Landlord’s Insurance Covers Your Belongings”
The Truth: Landlord policies cover ONLY the building structure, never tenants’ personal property.
The Reality:
- Your furniture, electronics, clothing (nothing is covered by your landlord’s insurance)
- If fire destroys the building, you lose everything with no compensation
- Landlords have no legal obligation to insure your belongings
The Solution: Renter’s insurance costs $15 to 30 monthly and covers:
- Your personal property ($30,000 to $50,000 typically)
- Liability if someone’s injured in your rental ($100,000 to $300,000)
- Additional living expenses if displaced
- Coverage even for items outside your rental (car, storage, travel)
Cost-Benefit: One theft or fire would cost far more than years of renter’s insurance premiums.
Myth 9: “Filing Any Claim Will Raise Your Rates”
The Partial Truth: Not every claim increases premiums, and not all increases are dramatic.
What Typically Doesn’t Increase Rates:
- Comprehensive claims (theft, vandalism, weather) with many carriers
- First claim after 5+ years of being claim-free
- Small claims where you don’t reach your deductible
What Usually Does Increase Rates:
- At-fault auto accidents
- Multiple claims within 3 to 5 years
- Liability claims
- Claims indicating increased risk (dog bite, trampoline injury)
The Calculation: Before filing, estimate:
- Claim payout minus deductible = net benefit
- Potential premium increase over 3 to 5 years
- Is the claim worth the long-term cost increase?
Example: $3,000 damage, $1,000 deductible = $2,000 payout. If premiums increase $400 annually for 3 years, you’ve paid $1,200 in increased premiums, netting only $800 benefit.
For Major Claims: Always file. A $50,000 claim is worth filing regardless of rate increases.
Myth 10: “Life Insurance Isn’t Needed If You’re Single with No Dependents”
The Truth: This isn’t strictly a P&C insurance myth, but it’s important. Even singles should consider coverage.
Why Singles Need Coverage:
- Final expenses (funeral costs $7,000 to $12,000)
- Outstanding debts (credit cards, student loans, car loans)
- Mortgage or lease obligations
- Helping aging parents
- Legacy/charitable giving
- Low cost when young and healthy
The Reality: Life insurance is cheapest when you’re young and healthy. Waiting until you “need” it means paying much higher premiums or being uninsurable due to health issues.
Term Life Example: A healthy 30-year-old can get $500,000 in 20-year term coverage for $25 to 40 monthly. That same coverage at age 50 might cost $150 to 250 monthly.
Bonus Myth: “Insurance Companies Always Deny Claims”
The Truth: Insurance companies pay the vast majority of legitimate claims. The industry’s business model depends on paying valid claims to maintain customer trust.
The Statistics: Most insurers pay 95%+ of claims. Denials usually result from:
- Non-covered perils or exclusions
- Lack of adequate documentation
- Misrepresentation on applications
- Policy lapses
- Failure to meet policy conditions
The Reality: Bad claims experiences make headlines. Hundreds of thousands of claims paid quickly and fairly never make the news.
Your Responsibility: Understand your policy, document losses thoroughly, report claims promptly, and provide complete information. This ensures smooth claims processing.
The Bottom Line
Insurance myths persist because insurance is complicated and most people don’t read their policies. Don’t let misconceptions cost you money or leave you unprotected.
Take These Actions:
- Actually read your insurance policies
- Ask your agent questions about anything unclear
- Don’t make assumptions about coverage
- Review coverage annually as your life changes
- Work with knowledgeable agents who explain coverage clearly
Knowledge is power and in insurance, it’s also money in your pocket and security for your future.