Things People Get Wrong About How Car Insurance Premiums Are Set
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Key Takeaways
- Vehicle color has no effect on your auto insurance premium — insurers don't track it.
- Your credit history can significantly influence your premium in most U.S. states.
- Comprehensive and collision coverage are separate from liability and must be added intentionally.
- A single at-fault accident can raise your premium for three to five years.
- Minimum state-required coverage often leaves drivers significantly underprotected after a serious claim.
Why Auto Insurance Myths Persist — and Why They're Costly
Auto insurance is one of the most consistent household expenses for American drivers, yet the rules behind premium-setting remain poorly understood. Misconceptions spread because insurance pricing is genuinely complex — dozens of rating factors interact in ways that aren't visible to the policyholder. Acting on bad information can lead to inadequate coverage, unexpected claim denials, or premiums that are higher than they need to be.
The myth-and-fact pairs below address the most common misunderstandings the Cars & Driving Editorial Team encounters. Each one has real financial consequences for drivers who take it at face value.
Myth
Red cars cost more to insure because insurers consider them higher risk.
Fact
Insurers do not factor in vehicle color when calculating premiums — not at all.
This is perhaps the most persistent auto insurance myth in circulation. In reality, insurers have no mechanism to track a car's color — their systems record the vehicle identification number (VIN), which encodes the make, model, trim level, engine type, and year. None of that includes paint. What does affect your premium is the vehicle's safety ratings, repair cost, theft rate, and engine size. A red economy sedan and a white sports car of the same model will carry identical base rates.
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 factor in setting your premium.
Most states permit insurers to use a credit-based insurance score — a metric derived from your credit history but distinct from your standard FICO score — when pricing auto policies. Actuarial research conducted by insurers and reviewed by state regulators has found a statistical correlation between credit-based scores and the likelihood of filing claims. California, Hawaii, Massachusetts, and Michigan are among the states that prohibit or restrict this practice. If you live in a state that allows it, improving your credit profile over time may contribute to lower premiums at renewal. Check your state insurance commissioner's website for rules specific to your location.
Myth
If another driver hits you, your own insurance doesn't get involved.
Fact
Depending on fault determination, coverage gaps, and your own policy elections, your insurer may be involved from the start.
When an at-fault driver's liability limits are too low to cover your damages — or when the driver is uninsured — your own uninsured/underinsured motorist (UM/UIM) coverage steps in, if you've elected it. In no-fault states, your own personal injury protection (PIP) coverage pays your medical bills first regardless of who caused the crash. Even in traditional fault states, disputes over liability percentages can draw your insurer into the process early. Understanding your policy's structure before an accident matters significantly. See how coverage elections affect your premium for more context.
Myth
Comprehensive coverage means your car is covered for everything.
Fact
"Comprehensive" is a specific, limited coverage type — it covers non-collision events like theft, weather, and falling objects.
The word "comprehensive" is genuinely misleading here. In insurance terms, comprehensive coverage pays for damage caused by events other than a collision: fire, hail, flooding, animal strikes, theft, and vandalism. It does not cover collision damage, mechanical breakdowns, or your personal belongings inside the vehicle. To be protected against collision damage, you need a separate collision endorsement. Drivers who assume their comprehensive policy covers a parking lot fender-bender often discover the gap after a claim is denied. New car owners frequently make this mistake when setting up their first policy.
Myth
Minor accidents and small claims don't really affect your premium.
Fact
Even a single at-fault claim can raise your premium and remain on your record for three to five years.
Insurers view claims history as a predictor of future risk. An at-fault accident — even a minor one — can trigger a surcharge at your next renewal and remain visible to insurers for three to five years depending on the state and insurer. Multiple small claims within a short window can lead to non-renewal. Before filing a claim for minor damage, it's worth comparing the repair cost against your deductible and estimating the likely premium increase. Paying out of pocket for low-cost repairs sometimes results in lower total expenditure over time. This is general guidance only — outcomes vary by insurer and policy terms.
Myth
The minimum coverage required by your state is enough to protect you financially.
Fact
State minimums set a legal floor, not an adequate safety net — they are often far below the cost of a serious accident.
Every state sets minimum liability limits that drivers must carry, but those floors are generally low. A serious multi-vehicle accident, significant medical bills, or a lawsuit can quickly exceed a minimum-limit policy, leaving you personally responsible for costs above what your insurer pays. State minimums also do not include collision, comprehensive, uninsured motorist, or medical payments coverage unless you add them. Drivers financing or leasing a vehicle are typically required by their lender to carry collision and comprehensive regardless of state law. For a deeper look at how these gaps emerge, see how auto policies are structured.
This article is for general informational purposes only and does not constitute personalized insurance or financial advice. Coverage terms, rating factors, and regulations vary by state and insurer. Consult a licensed insurance agent or your state insurance commissioner for guidance specific to your situation.
What Insurers Actually Look At When Setting Your Rate
Rather than color or assumptions about driver personality, insurers use actuarially validated rating factors — variables that have demonstrated a statistical relationship to claim likelihood and severity. Common factors include:
3–5 years
How long an at-fault accident affects your rate
Most U.S. insurers and state regulators allow surcharges tied to at-fault accidents to remain on a driver's rating record for three to five years.
~45 states
States permitting credit-based insurance scoring
The majority of U.S. states allow insurers to use credit-based insurance scores as a premium rating factor; a small number prohibit or restrict the practice.
- Driving record: At-fault accidents, moving violations, and DUI convictions all carry surcharges that can persist for years.
- Vehicle type: A vehicle's repair cost, safety ratings, and historical theft rate all feed into base rates for that model.
- Annual mileage: More miles driven generally means more exposure to accidents.
- Location: Urban zip codes with higher theft and accident rates typically carry higher premiums than rural areas.
- Coverage elections and deductibles: The limits you choose and your deductible amount directly control how much risk you transfer to the insurer versus retaining yourself.
Understanding which factors you can influence — and acting on them — is more productive than trying to game elements that aren't actually part of the rating formula. For a broader look at how these variables interact, the full breakdown of premium factors is a useful reference. If you're also navigating other policy types, it's worth knowing that similar myths exist in health and home insurance — see home insurance myths that leave policyholders underprotected for a parallel overview.
Don't Rely on State Minimums Alone
The content on this site is for informational purposes only and is not a substitute for professional advice. Always consult a qualified professional for guidance specific to your situation.