Common Beliefs About Insurance That Turn Out to Be Wrong
Photo credit: TopInfoTabs.com | Easy Insights For Inspiration
From red cars to automatic coverage assumptions, many widely held insurance beliefs are simply false. Here's what the facts actually say.
Key Takeaways
- Vehicle color has no bearing on your insurance premium — insurers don't track it.
- Your landlord's insurance covers the building, not your personal belongings as a renter.
- Minimum legal coverage often leaves significant financial gaps in the event of a serious claim.
- Filing a claim doesn't automatically raise your premium — context and history both matter.
- Your credit history can legally influence your insurance rate in most U.S. states.
Why Insurance Myths Are Costly
Insurance decisions made on faulty assumptions can leave real financial gaps — sometimes discovered only after a loss occurs. Many widely repeated beliefs about how insurance works are simply incorrect, yet they circulate so consistently that consumers treat them as reliable rules of thumb. This article addresses the most consequential ones directly, correcting the record with factual information.
If you're new to how policies work at a foundational level, understanding insurance from the ground up is a useful starting point before reviewing specific myths.
Myth
Red cars cost more to insure because insurers charge higher premiums for them.
Fact
Vehicle color is not a factor in how insurers calculate your premium — they don't ask for it on applications.
This is one of the most persistent insurance myths. Insurers base auto premiums on factors like the vehicle's make, model, age, engine size, safety ratings, your driving history, and location. Color is simply not collected or used. The confusion may stem from the informal association between red sports cars and aggressive driving, but the premium reflects the vehicle type and driver profile — not the paint. For a clearer picture of what actually moves the needle on your rate, see what factors quietly shape your insurance premium.
Myth
As a renter, your landlord's insurance will cover your belongings if there's a fire or break-in.
Fact
Landlord insurance covers the building structure, not your personal property or liability as a tenant.
A landlord's policy is designed to protect their investment — the physical structure and, in some cases, their lost rental income. If your apartment is burglarized or damaged by fire, your personal electronics, furniture, and clothing are not covered under that policy. Renters insurance is a separate, typically affordable product that covers your belongings and can include personal liability protection. Renters insurance coverage explained breaks down exactly what's included and what's excluded.
Myth
Carrying the minimum legally required insurance is enough to protect you financially.
Fact
Minimum liability limits can be exhausted quickly in a serious accident, leaving you exposed to significant out-of-pocket costs.
State minimum requirements set a legal floor, not a financial safety net. In a multi-vehicle accident involving injuries, medical and property costs can reach six figures — well above what minimum limits cover. The gap between what your insurer pays and what is owed becomes your personal liability. This is general educational information, not advice tailored to your situation; a licensed agent can help you assess what coverage levels align with your financial exposure.
Myth
Filing any insurance claim will immediately raise your premium.
Fact
Premium impacts after a claim depend on claim type, fault, your claims history, and your insurer's specific policies.
Not every claim triggers a rate increase. Many insurers offer accident forgiveness provisions, particularly for first-time incidents. At-fault claims in auto insurance are more likely to affect your rate than not-at-fault claims or comprehensive claims (such as weather damage or theft). Your overall claims history also matters — a single claim on a clean record is treated differently than a pattern of frequent claims. Understanding when and whether to file is worth discussing with your agent. For context on when claims get denied altogether, see why claims get denied.
Myth
Your credit score has nothing to do with your insurance premium.
Fact
In most U.S. states, insurers are permitted to use a credit-based insurance score as one factor in pricing policies.
Credit-based insurance scores are distinct from the scores lenders use, but they draw on similar underlying credit data. Insurers argue that credit history correlates with claim likelihood, though this practice is regulated or restricted in a small number of states including California, Hawaii, and Massachusetts. If you live in a state where it applies, improving your credit over time may eventually influence your insurance costs — though by how much depends on your insurer and policy type. This intersects with broader financial health; see credit score myths worth knowing for related context.
What These Myths Have in Common
Most insurance misconceptions share a root cause: consumers reasonably assume that insurance logic mirrors everyday logic, but the industry's pricing, coverage rules, and claims processes are governed by actuarial data and contract language that don't always align with intuition.
Minimum Coverage Is Not Full Protection
State-mandated minimum liability limits are designed to allow you to legally drive, not to fully protect your finances after a serious accident. Medical bills and property damage in a multi-vehicle collision can easily exceed minimum limits, leaving you personally responsible for the difference. Review your coverage limits carefully and consult a licensed insurance agent to understand what adequate protection looks like for your specific situation.
The practical takeaway is straightforward: don't rely on informal beliefs, word-of-mouth, or online generalizations when making coverage decisions. Read your policy documents, ask your insurer direct questions, and consult a licensed professional when the stakes are high. Being informed about how coverage actually works is the most reliable protection against preventable surprises.
~60%
Renters without renters insurance
Industry surveys have consistently found that a majority of renters in the U.S. do not carry renters insurance, often because they mistakenly believe their landlord's policy covers them.
45 states
States permitting credit-based insurance scoring
According to the National Conference of State Legislatures, the majority of U.S. states allow insurers to use credit-based insurance scores in pricing auto and homeowners policies.
This article is for general informational purposes only and does not constitute insurance, financial, or legal advice. Coverage terms, exclusions, and regulations vary by insurer, policy, and state. Consult a licensed insurance agent or adviser for guidance specific to your situation.
Author
Smart Shopping Editorial Team
Smart Shopping Editorial Team is the collective byline for our editorial team and contributor network. Articles published under this byline or an editorial pen name are researched, written, and reviewed according to our editorial standards for clarity, consistency, and independence before publication.
View all articles →