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Woman uses her cell phone to call for help after her car broke down.

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Don't buy into these myths that could affect your finances. 

Key points

  • Many people buy into common car insurance myths.
  • This includes a belief that car color matters.
  • Some people also don't realize credit affects insurance rates.

Auto insurance is an important type of insurance protection every driver should have. That's not just because most states require coverage, but also because car insurance provides important asset protection. 

Unfortunately, many consumers have some big misunderstandings about auto insurance that could affect the premiums they pay or the protection they get. In particular, here are five common myths many drivers believe. 

1. Car color matters 

One of the biggest misconceptions many people believe is that the color of a car affects auto insurance premiums. In particular, it's commonly believed that red cars cost more to insure. 

In reality, car color has no impact on auto insurance premiums. The make and model of a vehicle can affect cost, as different types of cars may be more or less safe and more prone to theft. But since color alone doesn't impact the likelihood of an insurance claim occurring, it's not a factor insurers consider when deciding how much coverage should cost. 

2. Credit won't affect your rates 

Some people incorrectly believe their credit score is entirely separate from insurance and has no impact on the rates they are charged. The reality is that insurers consider credit history as one method of assessing the risk of providing insurance. Those who have a history of black marks on their credit record are often thought of as being higher-risk consumers to insure, so they end up paying larger premiums as a result. 

3. Your insurance covers all possible losses 

Another common misconception is that car insurance covers every type of loss that could occur. The reality, however, is drivers face substantial risk of out-of-pocket expenses depending on what kind of insurance they have. 

For example, if a driver purchases only the minimum coverage their state requires, they would end up with a liability insurance policy only. Their insurance would pay for damages that other drivers incur if the covered policyholder caused a crash. But without collision or comprehensive coverage, an insurer would pay nothing if the car was stolen or if the driver got into a crash and damaged his own vehicle. 

Every motorist needs to understand what kinds of coverage are available and make sure they are buying all of the protection they need. 

4. If someone else drives your car, their insurance covers them

Car insurance generally is based on the vehicle rather than the driver. It's common for car owners to not be aware of this, and to assume that lending a car to a friend is risk-free because the friend's insurer would cover the costs if any problems occur. 

The reality is, if a motorist lets someone drive his car and that person gets into an accident, the car owner's insurer will cover losses. And this could make auto insurance more expensive for that owner. 

5. Business use of your car is covered by personal insurance

Finally, many people incorrectly assume if they use their car for business, they will be covered. That's not necessarily the case if a motorist has personal insurance coverage and hasn't disclosed the car will be used for business purposes. It's important to be clear with an insurer about how a car is used to make sure that insurance provides the proper coverage.

By understanding the reality behind these myths, drivers can be sure they are getting the protection they need -- and can realistically understand the factors that affect their premium price. 

Ensure you are selecting the right car insurance coverage

Auto insurance is something that most people don't think about very frequently. While there are several factors that drive people to look to change auto insurance carriers, it is important to educate yourself in order to ensure you select the right coverage for you. The right coverage means not paying for coverage you don't need and not foregoing coverage that would make sense for your personal situation. While price is a major factor, we also consider other factors such as customer service and the claims process when choosing what we think are the best auto insurance providers.

About the Author

Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.

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