The Most Common Misunderstandings About Car Insurance Rules
Insurance policies are notoriously difficult to understand. Read on to find out about three car insurance policies that are easily misunderstood.
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Car insurance policies aren't usually the most straightforward pieces of information you'll ever read. For example, did you know that comprehensive car insurance doesn't cover everything that can happen to your car? It's true. It covers many things, but it doesn't cover the basics (more on that below).
Here are a few common misunderstandings about car insurance rules and how to avoid losing money on a policy or a claim.
Misunderstanding 1: Comprehensive insurance coverage covers everything
Many of us may see the word "comprehensive" and assume that if we have comprehensive coverage, it will cover every type of accident, collision, or weather event that might happen to our vehicles.
Unfortunately, that's not exactly right. Comprehensive policies may cover many specific types of damage to your vehicle -- including fire, hail, and flood damage, theft, etc. -- but it doesn't cover some of the basics. For example, it doesn't cover collisions with another vehicle or protect you when involved in an accident with an uninsured motorist.
According to Nationwide Insurance, comprehensive coverage is for most other damages to your vehicle that aren't a collision. It also doesn't cover repairs for everyday wear and tear on your vehicle.
If you want to cover the most potential damage to your vehicle, sign up for collision coverage and then add comprehensive coverage. And if you want protection against a collision with an uninsured motorist, you may need to sign up for uninsured motorist coverage.
Misunderstanding 2: Car insurance premiums are tied to the price of a vehicle
This one is a little tricky because your vehicle's price affects how much your insurance costs. For example, if you own an inexpensive $5,000 car and replace it with a new $30,000 vehicle, your car insurance rates will almost certainly go up because the cost to replace your vehicle is much higher.
But the misunderstanding comes when assuming that all expensive vehicles cost more to insure than cheaper ones. Nationwide says that some luxury vehicles are actually cheaper to insure than some mid-priced ones because they're cheaper to repair.
Repair costs are a driving force in how much your insurance rates are. And as car repair costs have jumped 17% over the past year, many Americans' car insurance rates have increased as well.
If you've recently bought a car and discovered that it's more expensive to insure than you thought it would be, you may want to consider taking a defensive driving course to help lower your premiums. You won't have to adjust your coverage, and some insurance companies may reduce your premiums by 5% to 10%.
Misunderstanding 3: Quickly cancel your policy when you find a new one
I'm used to canceling things I'm subscribed to. I swap out video streaming services regularly and hardly give it a second thought. But for car insurance, it's best to wait to cancel your policy until you have another one in place.
If you shop for a better car insurance company online and find one, you may be tempted to quickly cancel your old policy. But if you cancel your insurance before you've signed up for a new policy, the new car insurance company may charge you a higher premium because your coverage has technically lapsed.
How do you avoid this? Shop for a new car insurance company and contact it first about the policy and its start date. Then, once you've started a policy with the new company, call your former car insurance company to cancel the policy.
Insurance isn't the most accessible topic, but perhaps looking at some common misunderstandings makes it a bit simpler. Now that I've learned a thing or two myself, I may or may not be spending the next few days researching luxury cars that have lower insurance rates than my Honda CR-V…strictly for practical, financial reasons, of course.
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