Key Takeaways
- Car color has no effect on your insurance premium — insurers don't ask about it.
- Your credit history is a rating factor in most U.S. states, and improving it can lower your rate.
- Minimum liability coverage only protects others — it leaves your own vehicle unprotected.
- Older vehicles may still benefit from comprehensive coverage depending on their value and your situation.
- Filing a small claim can cost more in raised premiums than simply paying out of pocket.
Why Insurance Myths Persist — and What They Cost You
Auto insurance is one of the largest recurring costs of vehicle ownership, yet most drivers spend very little time understanding how it actually works. That knowledge gap is fertile ground for myths — some harmless, others quietly expensive. Misconceptions about what affects your rate, when to file a claim, and how much coverage you actually need can add hundreds of dollars a year to your costs, or leave you dangerously underprotected when an accident happens.
The myths below are among the most widespread, and each one has a real financial consequence. Understanding where the evidence actually lands is the first step toward making coverage decisions that genuinely serve your interests — rather than assumptions that benefit no one but the misconception itself.
These same dynamics appear across financial decisions more broadly. If you've noticed persistent money myths elsewhere in your life, our coverage of budgeting myths that keep people stuck explores similar patterns in personal finance.
The Myths, Corrected
Each of the following misconceptions is common enough that insurers and consumer advocates regularly encounter them. Some are simply wrong. Others contain a grain of truth that gets misapplied in costly ways.
Myth
Red cars cost more to insure because insurers see them as a higher risk.
Fact
Vehicle color is not a rating factor used by auto insurers. Premiums are based on the make, model, age, and safety record of the vehicle — not its paint.
This myth is remarkably persistent, but insurers don't ask about color when you apply for coverage. What they do evaluate includes the vehicle's repair costs, theft rates for that model, safety ratings, and engine size. A red economy sedan and a white one of the same trim level will carry the same base rate. The confusion may stem from the association between sporty cars — which often come in red — and higher premiums. It's the performance specs, not the color, driving the difference.
Myth
Your credit score has nothing to do with your car insurance rate.
Fact
In most U.S. states, insurers use a credit-based insurance score as one of several factors when setting premiums. Drivers with lower scores often pay higher rates.
A credit-based insurance score is different from a standard credit score, but both draw on the same underlying credit report data. Insurers have found statistical correlations between certain credit patterns and claim frequency, which is why most states permit this practice. A handful of states — including California, Hawaii, and Massachusetts — prohibit or restrict the use of credit in auto insurance pricing. If you're unsure whether credit affects your rate, check your state's insurance commissioner website for current rules. Improving overall credit health can have a measurable effect on premiums where the practice is permitted. For a broader look at how insurers price policies, see how auto insurance premiums are calculated.
Myth
Once a car is paid off or older, you no longer need anything beyond the state minimum.
Fact
Whether a vehicle warrants comprehensive and collision coverage depends on its market value, replacement cost to you, and your financial cushion — not simply its age or loan status.
The logic behind dropping full coverage on an older vehicle is sound in principle: if the car's market value is low enough that a total-loss payout would barely cover a deductible, the premium may not be worth it. However, "older" doesn't automatically mean "low value." Well-maintained vehicles, classics, and certain models hold their value longer than average. Before dropping coverage, get an accurate current market valuation and compare it honestly against your deductible, annual premium cost, and ability to absorb an unexpected loss. A plain-language breakdown of coverage types can help clarify exactly what each layer does and excludes.
Myth
Filing a claim always makes sense — that's what insurance is for.
Fact
Filing a claim for minor damage often triggers a premium increase that exceeds the payout, making it more expensive than paying out of pocket.
Insurance is most valuable as protection against large, unexpected losses. For small incidents — a door ding, a minor fender scrape — filing a claim can result in a surcharge that persists for three to five years on your policy. Over that period, the cumulative premium increase can far outpace the original claim value. A useful rule of thumb: if the repair cost is close to or below your deductible, or only modestly above it, paying directly usually costs less over time. Keep in mind that some insurers also track inquiries even when no claim is filed, so it's worth understanding your policy's terms before calling your agent about minor damage.
Myth
Personal auto insurance covers you when driving for a rideshare or delivery service.
Fact
Standard personal policies typically exclude commercial or for-hire use. Gaps in coverage exist even when rideshare companies provide some coverage at certain trip stages.
Rideshare and delivery platforms generally offer layered coverage that varies depending on whether the app is off, on and waiting, or actively on a trip. During the waiting period in particular, personal policy exclusions may apply while platform coverage hasn't fully activated. Drivers who use their vehicle for any income-generating purpose should explicitly discuss this with their insurer. Many carriers now offer endorsements designed to close this gap, but they are not automatic add-ons — they must be requested and added to the policy.
Don't Assume Coverage Transfers Automatically
Many drivers believe their policy automatically adapts to major life changes — a new car, a teen driver added to the household, or moving to a new state. In practice, gaps can open up if you don't notify your insurer promptly. Always contact your insurer when circumstances change rather than assuming existing coverage still applies.
Minimum Coverage Doesn't Mean Adequate Coverage
Meeting your state's minimum liability requirements keeps you legal, but it may leave you personally exposed to significant out-of-pocket costs after a serious accident. Liability coverage pays for damages you cause to others — it does not repair your vehicle or cover your medical bills. Drivers who rely solely on minimums should understand exactly what those limits mean before assuming they are protected.
~85%
States allowing credit-based insurance scoring
The majority of U.S. states permit insurers to use credit-based insurance scores as a rating factor, according to the Insurance Information Institute.
3–5 years
Typical duration of a claims surcharge
Industry guidelines generally allow insurers to apply a premium surcharge for at-fault or chargeable claims for three to five policy years.
For a fuller picture of how all these variables interact, the detailed look at how auto insurance premiums are calculated is a useful companion read. And for ongoing vehicle ownership guidance beyond insurance, the car maintenance hub covers the practical side of keeping your vehicle in good shape.