Understanding all the legal mumbo-jumbo of an insurance policy is hard enough. So auto policy holders should know what's fact and what's fiction about what insurers look for when determining premium rates. Here are 10 auto insurance myths debunked. (For related reading, see The History Of Insurance In America.)

TUTORIAL: Insurance

1. The color of my car matters.
Red cars may be a hot ticket item, but they do not drive premium prices up as is widely believed. Car insurers are more interested in the make and model, year, body style, engine size and, in some areas, location (street parking versus driveway/garage-kept vehicles, for instance). What does count, however, is drivers' behavior. Moving violations, like speeding or reckless driving that result in "points", certainly affect the cost of premiums no matter what color the vehicle happens to be. You may care what color your car is, but insurance companies don't.

2. My old car won't be a target for theft.
Wrong. According to a National Insurance Crime Bureau report, car thieves preferred older models because they are easier to steal. In fact, a 2007 bureau report that listed the most stolen vehicles included a 1995 Honda Civic, a 1991 Honda Accord and a 1989 Toyota Camry.

The insurance bureau's report also suggests that thieves' preference varies from state to state. Crooks in Texas grab trucks, while thieves in California prefer Hondas, Toyotas and other imported models.

3. I'm covered if my car is stolen, vandalized or damaged by hail, wind, fire or flood.
Comprehensive and collision coverage are optional when purchasing an insurance policy. So it's not an "automatic" if a tree limb smashes your windshield or vandals spray-paint graffiti on your door. Comprehensive and collision riders are usually required if you're leasing or financing your vehicle; but once the car is yours, you must request this additional coverage.

4. Credit scores don't affect insurance rates.
Most car insurers take a lot of factors into consideration when determining your premium rates. Since your credit score is an indication of how well you manage your financial affairs, many companies look at this number if you want to purchase, renew or change an insurance policy. (Credit is one factor that may affect your rate; read Top Tips For Cheaper, Better Car Insurance for more.)

5. My insurance company can cancel my policy at any time.
Unless you give them an adequate reason to do so, car insurers can't arbitrarily cancel a policy in the middle of a term. Grounds for cancellation may include fraud or non-payment of premiums.

6. My friend borrowed my car, so he's responsible if there's an accident.
Car insurance companies follow the car, not the driver. So you are ultimately responsible for an accident and any damages that occur.

7. Personal property inside my car is covered.
Sorry. If your expensive golf clubs get ruined when your car is rear-ended, you're out of luck. Likewise, if expensive items like a laptop or fur coat are damaged or stolen from your car in the course of an incident, you may file a claim through your homeowner's (or tenant's) policy but not through your car insurance.

TUTORIAL: Budgeting Basics

8. I'm automatically covered for a rental car.
If your car is stolen or damaged, rental car reimbursement is not automatically included in your policy. But it is one of those very affordable additions. According to the Insurance Information Institute, rental reimbursement coverage is available for $1 to $2 a month with most insurers.

But take heed: Even with this additional coverage, there may be limits on how many days you can rent a car, or how much is allowed per day toward rental costs (including a maximum cap).

Speaking of rentals, don't assume your coverage will be sufficient if you're using a credit card for the transaction. Each credit company has its own policy inclusions and exclusions. So check the fine print first, or you may get stuck with a hefty bill.

9. Drivers of sports cars pay more insurance because of more tickets.
This may be true if you're also a high-risk driver (younger than 25) or have a checkered driving history with multiple moving violations. But according to a study published in 2009 by Quality Planning, drivers of the Hummer H2/H3 led the pack with the most violations and, more than likely, higher premium rates. Others on the list included drivers of the Scion xB multipurpose wagon and the Subaru Outback station wagon - definitely not hot sports cars.

10. Having no-fault insurance means it's not my fault.
No-fault insurance varies from state to state. But in a nutshell, it means you and the other party will be covered for immediate expenses, such as medical attention or lost wages, while the insurance companies arm-wrestle about who will pay for the accident itself.

But you may still be liable for repairs and other damages if the insurance companies ultimately determine the accident was your fault.

The Bottom Line
It may take a little reading of the fine print and asking questions of your agent, but you can save yourself a lot of headaches and pain in your wallet if you understand fact from fiction about your auto insurance policy. (For more insight, see 15 Insurance Policies You Don't Need.)

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