Car Insurance myths

Article Written By: bethanycollins

Since insurance rates vary from person to person, there are a lot of misconceptions doing the rounds. These issues baffle most people, especially those new to car insurance. It is better to dispel those myths now, before you have a claim, than to end up disappointed later.

Here is a list of the most popular car insurance myths and accompanying facts.

Myth - If I total my car before it is completely paid off, my car insurance company will pay the balance amount to my creditor

Fact - This is probably one of the most popular myths doing the rounds. Whenever a car is totaled, the car insurance company only pays you the blue book value of that car, which factors in depreciation and the market value of the car at that point. Unless you have specifically bought gap insurance, you will have to pay your creditor out of your own pocket for any balance payments you owe.

Myth - Red and yellow cars have the highest rates

Fact – Car insurance companies fix rates on each model based on the risk factor; they take into account facts like the engine size, body type, make, model, and age of the car. Insurance companies never ask you the color of your car. However high end luxury cars are more expensive to insure as statistics prove they are costlier to repair/ replace.

Myth - When I buy minimum State mandated car insurance, I am automatically covered for any damage to my car

Fact -If you are just buying liability coverage, it will do nothing for any damage to your car. Liability coverage is to compensate others for damages done because of your car. To cover damages to your car during a collision, you need collision coverage; for protection against losses due to theft, hail, riots and fire, you need to buy comprehensive coverage.

Myth - Thieves are more likely to steal new cars

Fact - Thieves are equally likely to steal older cars for the used car parts which are easier to sell, more difficult to trace once disassembled, and make them money much faster. So unless your car is a complete beater which you can easily afford to replace, it is advisable to keep a comprehensive coverage on your policy.

Myth - If the other driver is uninsured, my company will step in to compensate me in the event of an accident

Fact- If you do not carry Uninsured motorist coverage on your policy, you car insurance company cannot help you when the at-fault driver has no insurance; you are pretty much on your own. So it makes sense to invest in Uninsured motorist coverage. In fact some states in the US have made it compulsory to buy one. Illinois, for example, require you to buy Uninsured Motorist Bodily Injury coverage for $20000 per person, and $40000 per accident.

Myth - By opting for the lowest deductible, I wouldn t have to cough up a lot of money in the event of a claim so I ll be saving money

Fact – You are actually losing money much faster by opting for a lower deductible. The higher the deductible, the lower are your rates. Some companies give you discounts as high as 40 percent, if you opt for the highest deductibles. You can save this money into an emergency fund for your car instead and stay prepared for an emergency.

Myth – The State sets the rates I don t need to shop around for good deals.

Fact – Each State sets requirements about the minimum coverage which is mandatory. Car insurance companies set their own rates according to the coverages and benefits they offer; so it s a good idea to take multiple car insurance quotes to see where you can get the maximum benefits for the most affordable rates.

A word of caution however; before you decide to go with a company, make sure you learn more about its claim handling reputation and financial standing. You don t want to end up with a company that does not or cannot deal with your claim when you need it most.

About the Author

Bethany Collins is a Work at Home Mother (WAHM) who lives with her husband and two kids. She loves to read and surf the internet looking for new money saving tips, recipes, etc. In her spare time she writes on personal finance [home, life and car insurance, budgeting, and other investment options] and grows organic vegetables in her small vegetable garden.

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