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6 top car insurance myths

Insurance can be complicated enough. Don’t let a flood of misinformation drown out the facts. Since misunderstandings can be costly, here are the most common car insurance myths debunked.

myth cartoonMyth: Red cars are the most expensive to insure

Fact: Red will not cost you more green. Roughly 25 percent of drivers surveyed by Progressive Insurance believe that the color of their car is a factor in determining their insurance rate — especially if the car is red. But the belief that drivers of red cars pay higher car insurance premiums is a myth. Insurance companies will likely not even ask the color of your car when they’re calculating your car insurance rates.

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The notion that car color determines what you’ll pay for insurance is a longstanding myth. It may have come from the idea that people who drive red sports cars are reckless.

Car insurance companies are interested in the year, make, model, body type, engine size and age of your vehicle. The color may be important to you, but it really doesn’t matter to your insurance company.

Myth: Thieves prefer to steal new cars

Fact: It’s the other way around. Statistics show that thieves actually prefer to steal older cars. According to a 2011 National Insurance Crime Bureau (NICB) report, the top 10 most-stolen vehicles reported in 2010 were the '94 Honda Accord, '95 Honda Civic, '91 Toyota Camry, '99 Chevrolet pickup (full size), '97 Ford F-150 pickup, '04 Dodge Ram pickup, '00 Dodge Caravan, '94 Acura Integra, '02 Ford Explorer and '99 Ford Taurus.

The reason older vehicles dominate the list is because they are easier targets for thieves. Because people are keeping their cars longer in the tight economy, there is a strong market for used parts that may come from stolen vehicles.

If you have an older vehicle and have dropped comprehensive coverage to save money, you are not covered for theft and do not qualify for rental car coverage. NICB’s report reveals that thieves have different preferences from state to state. Crooks in California and Florida prefer imports like Hondas and Toyotas. Texas crooks select pickup trucks. Criminals in Indiana and Michigan have a thing for domestics (Dodges and Fords).

Myth: My auto insurance will cover me if my car is stolen, vandalized or damaged from hail or fire.

Fact: Unless you have comprehensive coverage, you are not covered for any of these things. A bare-bones policy in most states only requires you to buy liability coverage. This pays only for damage you cause to others. You need to purchase both collision and comprehensive coverage in order to fully protect your vehicle from all types of damage situations.

Comprehensive coverage covers pays for damages to your car that are not the result of a car accident. That includes theft, vandalism, hail, fires and accidents involving animals. Collision coverage pays for damage to your vehicle from a car accident.

Myth: If my car is totaled, my car insurance will pay off what I owe on my loan or lease.

Fact: When your car is totaled, your auto insurance policy does not promise to pay off what you owe. It will pay you the actual cash value of your car, minus your deductible. Actual cash value is the amount your car was worth before the accident, factoring in depreciation. You are still responsible for any amount outstanding on the loan or car lease.

The only way to cover the difference between the car's cash value and the amount you owe on a loan is to purchase gap insurance. Available to cover both auto leases and loans, gap insurance covers you if your car is totaled before you’ve paid off the loan, or before the lease term expires. Insure.com's Save yourself some grief: buy gap coverage article explores this issue.

Your insurer will decide if your car is "totaled." Generally a total loss is declared when the repair costs exceed a certain threshold of the car’s value. It varies by insurer. Generally insurance companies will total your car if the repair costs exceed between 51 to 80 percent of the car’s value. At that point, the insurance company will tow the car to the salvage yard and offer you the actual cash value of your car.

Myth: My auto insurance company will pay for a rental car if my car is stolen or damaged in an accident.

Fact: Even if you have comprehensive and collision coverage, it may not include a rental car. Rental car reimbursement is not automatically included in most car insurance policies, but you can add it at an affordable cost. According to the Insurance Information Institute, rental reimbursement coverage is available for $1 to $2 a month with most insurers.

Even if you have this coverage, it won’t necessarily last until your stolen car is recovered or your damaged car is fixed. There’s a limit on how much your insurance company will reimburse you per day, plus a cap for a maximum amount per accident. For example, GEICO charges $20 per year for a maximum $750 in rental reimbursement, with no deductible to pay. In this case, GEICO would reimburse you up to $25 per day but no more than $750 per accident.

Myth: Drivers of sports cars get more tickets and thus pay higher car insurance rates.

hummerFact: That’s not necessarily the case. According to a list released in 2010 by Quality Planning Corp., cars with the most violations are coupes, sedans and SUVs. The Merdedes-Benz SL-Class convertible was the only sporty car on the list. Drivers of two different Scion models (TC, XB) also made the Top 10 list. Others on the list include drivers of the Toyota Camry-Solara, Hummer H2 and H3, Mercedes-Benz CLS-63 AMG, Acura Integra, Pontiac Grand Prix, Mercedez-Benz CLK 63 AMG and the Volkswagen GTI.

At the other end of the spectrum, the study also includes a "well-behaved vehicle list." Topping that list are drivers of the Buick Rainier, followed by the Mazda Tribute, Chevrolet C/K-3500/2500, Kia Spectra, Buick Lacrosse, Saturn Aura-Hybrid, Oldsmobile Silhouette, Chevrolet Uplander, Hyundai Tuscon and Pontiac Vibe.

While insurers don’t base their car insurance premiums on this study, the insurance loss history for the model you drive and your own driving history factor into how much you will pay for car insurance. Insure.com's How your car drives your insurance premium explains this issue.

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