Why New Car Owners Get Insurance Wrong
Auto insurance is one of the first financial decisions you make as a car owner, yet it's surrounded by stubborn myths that can lead to real mistakes — from choosing the wrong coverage level to being blindsided by a claim denial. If you're just getting started, our guide for first-time car owners covers the broader picture of what to expect. Here, we focus specifically on the insurance misconceptions that catch new owners off guard most often.
The myths below aren't obscure. They circulate in casual conversation and sometimes even get passed along by well-meaning family members. Working from accurate information — not assumptions — is the foundation of sound coverage decisions.
Myth
Minimum state-required insurance is enough to fully protect me financially.
Fact
Minimum liability limits are often far lower than real-world accident costs, leaving you personally on the hook for the difference.
Every US state sets a floor for liability coverage, but those minimums were often established years ago and don't reflect current repair or medical costs. If you cause an accident that results in $80,000 in damages and your policy only covers $25,000, you're responsible for the remaining $55,000 out of pocket. Minimum coverage is a legal starting point, not a financial safety net.
Myth
Red cars cost more to insure because insurers think they attract reckless drivers.
Fact
Vehicle color has no bearing on your insurance premium — insurers do not track or rate by color.
This myth has circulated for decades, but no major US insurer uses vehicle color as a rating factor. What actually influences your premium includes the vehicle's make, model, age, engine size, safety ratings, and theft statistics — along with your own driving record, location, and in most states, your credit history. When you request a quote, your insurer asks for your VIN, not your paint code.
Myth
My credit score has nothing to do with my car insurance rate.
Fact
In most states, insurers use a credit-based insurance score as one factor in calculating your premium.
A majority of US states permit insurers to use credit-based insurance scores — a metric derived from your credit history but distinct from a standard credit score — when setting rates. Research cited by the Federal Trade Commission has found a statistical correlation between these scores and the likelihood of filing a claim. A handful of states, including California, Hawaii, and Massachusetts, restrict or ban this practice. If you're unsure how your state handles it, your state's department of insurance is the authoritative source.
Myth
Liability coverage will pay to fix my car if someone else hits me.
Fact
Liability coverage pays for damage you cause to others — your own vehicle is not covered under your liability policy.
Liability is the coverage you carry to protect other people from your mistakes. If another driver causes the accident, their liability coverage should pay for your repairs — but if they're uninsured or underinsured, you may be left without recourse unless you carry uninsured/underinsured motorist coverage or collision coverage on your own policy. This is one of the most consequential misunderstandings new owners encounter after a claim.
Myth
If I finance my car, I only need the state-minimum coverage my lender mentions.
Fact
Nearly all auto lenders require both comprehensive and collision coverage for the life of the loan, regardless of state minimums.
When a lender finances your vehicle, they have a financial interest in it until the loan is paid off. To protect that interest, lenders typically require comprehensive coverage (which covers non-collision events like theft, fire, and weather damage) and collision coverage (damage from accidents), in addition to liability. Dropping to minimum coverage while you still have a loan is usually a breach of your loan agreement and could result in the lender purchasing costly force-placed insurance on your behalf and billing you for it.
Making Smarter Coverage Decisions
Getting your coverage right isn't just about satisfying legal requirements — it's about understanding what you're actually buying. Many new owners discover too late that minimum liability coverage leaves them personally responsible for costs that exceed their policy limits.
1 in 7
US drivers estimated to be uninsured
According to the Insurance Research Council, an estimated one in seven drivers on US roads carries no insurance coverage at all.
~38%
Of insured drivers carry only minimum liability
Industry surveys consistently find a large share of insured drivers choose state-minimum coverage, often underestimating the financial exposure it leaves.
If you're weighing your coverage options and unsure whether a higher tier makes sense for your situation, this breakdown of comprehensive vs. third-party coverage walks through what each level protects and what it leaves out. Insurance is general financial information — your specific situation may warrant a conversation with a licensed insurance professional before making final decisions.
Gaps in Coverage Are Real Financial Risk
Choosing coverage based on myths rather than facts can leave you personally liable for costs that far exceed your policy limits. Before finalizing any policy, read the declarations page carefully and ask your insurer or agent to explain exactly what is and isn't covered. A licensed insurance professional can help you assess whether your current limits match your actual financial exposure.
This article is for general informational purposes only and does not constitute financial, legal, or insurance advice. Coverage requirements, rating factors, and policy terms vary by state and individual insurer. Consult a licensed insurance professional for guidance specific to your situation.
