Insurance is one of those things we have to have but don’t necessarily understand fully. We have life insurance, auto insurance, property insurance, business insurance, liability insurance and so on. Insurance myths come about due to this inherent lack of understanding of the insurance industry. Some of these myths are so prevailing that until I started to study insurance and got a better understanding of the industry I believed them myself.
Red Cars Are More Expensive to Insure
This is probably the most common myth about car insurance, until a few years ago I too believed that red cars cost more to insure. The fact is that insurance companies do not pay any attention to the color of the vehicle and often do not even ask about it. When it comes to car insurance companies care about the make, model, year, body type and engine size of the car; they do not care about the color.
If Someone Driving My Car is in an At-Fault-Accident I Will Not Be Responsible
Wrong! If you lend your car to someone you will be lending your insurance along with it, if they cause an accident it will stay on your insurance record and insurers will rate you for it. The policy covering the vehicle is considered the primary policy and is liable for the damage, in some cases if there is insufficient coverage (maybe a deductible difference) than the driver’s policy may kick in to cover the difference. This may vary from province/state to province/state.
Auto Insurance is Not Regulated, Companies Can do As They Please
This could not be any further from the truth. Although it may feel like insurance companies are ripping you off and can do as they wish, this is not true. The insurance industry is highly regulated and every company has to file their rating system with the appropriate regulatory bodies, they cannot randomly increase rates on individuals.
If My Car is Totaled, Insurance Company will Pay Off the Lease/Loan
False! If your car is totaled the insurance company will only pay you the actual cash value of the vehicle, this is the value of the car before the loss occurred minus depreciation. If the amount you owe is more than this then you will be responsible for the difference. Often when the vehicle is leased/financed brand new you can purchase a “depreciation waiver” in which case you would receive the actual purchase price of the car without any depreciation.
You believe any of these myths? Any other myths you’d like to shed some light on? What is the most common myth you have heard?
Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.