Key Takeaways
- Car color has no effect on your insurance premium — insurers don't ask for it.
- Renters insurance is often affordable and covers belongings, liability, and temporary living costs.
- Minimum required coverage is not the same as adequate coverage for your situation.
- Your credit history can legally affect your insurance rates in most U.S. states.
- Filing a claim can sometimes raise your premium, so small losses may not be worth reporting.
- Being underinsured can be just as financially damaging as having no insurance at all.
Why Insurance Myths Cause Real Financial Harm
Insurance is one of those topics most people avoid thinking about until something goes wrong. That combination of complexity and avoidance creates the perfect environment for myths to take root. The problem isn't just that these myths are wrong — it's that acting on them can leave you significantly worse off when you actually need coverage.
Whether it's skipping renters insurance because you think your landlord's policy covers you, or assuming the state minimum auto coverage is enough, misinformation about insurance has real financial consequences. This article walks through the most persistent myths and sets the record straight. For a broader look at coverage gaps many Americans don't know they have, see why people are underinsured and don't know it.
Myth
Red cars cost more to insure because they get pulled over more often.
Fact
Insurers don't factor in vehicle color when calculating premiums. They don't even ask for it on applications.
This is one of the most durable myths in auto insurance. The factors that actually influence your premium include your driving record, the vehicle's make, model, year, safety ratings, repair costs, and how often that model is stolen — not its paint. Color simply isn't part of the underwriting equation. If you're curious what does move the needle on your rate, why your car insurance premium goes up lays it out clearly.
Myth
Renters don't need insurance — the landlord's policy covers the building.
Fact
A landlord's policy covers the building structure only. Your personal belongings and liability are your responsibility.
If a fire, burst pipe, or break-in damages your furniture, electronics, or clothing, your landlord's insurance won't pay you a cent for those losses. Renters insurance — which is often available at a relatively modest annual cost — typically covers personal property, personal liability, and additional living expenses if your unit becomes uninhabitable. It also covers your belongings when they're outside your apartment, such as items stolen from your car. Many renters assume they own too little to bother, but the replacement cost of everyday belongings adds up quickly.
Myth
State minimum auto coverage is enough protection for most drivers.
Fact
Minimum liability limits are set by law to protect other people, not to fully protect you.
State-mandated minimums vary widely and are often set at levels that would be quickly exhausted in a serious accident — particularly one involving medical bills or a lawsuit. If the damages exceed your coverage limits, you're personally responsible for the difference. Minimum coverage also typically excludes protection for your own vehicle unless you add collision and comprehensive. Meeting the legal minimum keeps you street-legal; it doesn't mean you're adequately covered. See our overview of insurance types most Americans actually need for a fuller picture.
Myth
Your credit score has no bearing on your insurance rates.
Fact
In most U.S. states, insurers are permitted to use a credit-based insurance score as one factor in setting premiums.
Credit-based insurance scores are distinct from the credit scores lenders use, but they're derived from similar underlying credit data. Research cited by state insurance regulators has found statistical correlations between certain credit patterns and the likelihood of filing a claim — which is why insurers use them. A handful of states, including California, Hawaii, Massachusetts, and Michigan, restrict or prohibit this practice for auto insurance. If you live in a state where it's allowed, maintaining good credit habits can indirectly affect what you pay for coverage. Check with your state's insurance department or a licensed agent to understand the rules where you live.
Myth
You should always file a claim — that's what insurance is for.
Fact
Filing a claim for a small loss can raise your premium or trigger a surcharge that costs more than the claim itself.
Insurance is designed to protect you from large, hard-to-absorb losses, not to reimburse every minor expense. When you file, your insurer may apply a surcharge at renewal or, in some cases, non-renew your policy after multiple claims in a short period. Before filing, it's worth comparing the claim payout (minus your deductible) against the potential long-term premium increase. For significant losses, filing is usually the right call. For a scratched bumper or a minor broken window, paying out of pocket often makes more financial sense. If you do file, filing a claim without making it harder on yourself walks through how to do it effectively.
Myth
Once you're insured, you're fully protected — no need to revisit your policy.
Fact
Coverage needs change over time, and an outdated policy can leave significant gaps when you need it most.
Major life changes — buying a home, getting married, adding a vehicle, starting a home-based business, or acquiring valuable items — can all create coverage gaps if you don't update your policy. Homeowners who renovate without adjusting their dwelling coverage, or who accumulate valuables beyond their policy's sub-limits, often discover the shortfall only after a loss. An annual policy review with your agent is a reasonable habit that costs nothing but time. For more on how this plays out, see things people get wrong about what insurance actually covers.
What to Do With This Information
Understanding what insurance does and doesn't do is foundational to protecting your finances. Myths spread because insurance language is often dense and policies are rarely read cover to cover. Two of the most commonly misunderstood concepts — how your payout is calculated and what factors drive your rate — can make a significant difference in a claim scenario. Our guide to actual cash value vs. replacement cost explains a distinction that often surprises policyholders at the worst possible time.
~57%
Renters without renters insurance
According to the Insurance Information Institute, a majority of renters in the U.S. do not carry renters insurance, leaving their belongings and liability unprotected.
43 states
States allowing credit-based insurance scoring
Most U.S. states permit insurers to use credit-based insurance scores for auto or home policies, according to the National Conference of State Legislatures.
1 in 8
Drivers estimated to be uninsured
The Insurance Research Council has estimated that roughly one in eight U.S. drivers carries no auto insurance, underscoring why adequate liability limits matter.
It's also worth knowing that a denied claim isn't necessarily the end of the road. Learn what your options are in our article on why insurance claims get denied and what to do next. And if you're unsure whether your current coverage is right for your living situation, renters vs. homeowners insurance breaks down both policies in plain terms.
Myths Can Leave You Financially Exposed
Acting on insurance misinformation — whether it's skipping coverage, carrying too little, or misunderstanding what a policy pays — can result in out-of-pocket losses that are difficult to recover from. Insurance terms and coverage rules vary by policy and state. Always read your policy documents in full and speak with a licensed agent before making coverage decisions.
This article is for general informational purposes only and does not constitute personalized insurance, financial, or legal advice. Coverage terms, exclusions, and regulations vary by provider and state. Always read your actual policy documents and consult a licensed insurance agent or advisor for guidance specific to your situation.