Insurance Coverage Myths That Cost Americans Money

Insurers base auto premiums on factors like the vehicle's make, model, year, engine size, safety ratings, your driving history, location, and — in most states — a credit-based insurance score. The color of the car is irrelevant to any of these calculations. This myth has circulated for decades, but there's no mechanism by which it could be true under standard underwriting practices.

Landlord insurance — sometimes called a dwelling policy — is designed to protect the property owner's investment: the walls, roof, and fixtures. If your laptop, furniture, or clothing is damaged in a covered event, or if a guest is injured in your unit, that's your financial exposure to manage. Renters insurance exists specifically to fill this gap and is generally one of the more affordable types of coverage available. See our detailed breakdown of what renters insurance actually covers versus what homeowners insurance covers.

Every state sets a minimum required level of liability coverage, but those thresholds were often established years ago and may not reflect the actual costs of a modern accident involving medical bills, vehicle repair, or legal fees. If damages exceed your coverage limits, you are personally responsible for the difference. Many drivers find that carrying limits well above the state minimum — and adding uninsured/underinsured motorist coverage — provides meaningfully better financial protection. A licensed agent can help you assess what makes sense for your situation.

Group life insurance through an employer is a common benefit, but the coverage amount is often modest — frequently one or two times your annual salary — and it generally ends when your employment does. Some plans allow conversion to an individual policy, but that process has deadlines and the resulting premiums can be significantly higher. Relying solely on employer coverage leaves a gap whenever you change jobs, are laid off, or retire. An independent life insurance policy gives you coverage that follows you regardless of where you work.

A credit-based insurance score is a specific calculation insurers use that draws on credit report data but is weighted differently than the score a lender would use. Studies cited by insurance regulators have found a statistical correlation between certain credit patterns and claim frequency, which is why most states permit its use. A small number of states — including California, Hawaii, and Massachusetts — restrict or prohibit its use in auto or home underwriting. If you're unsure whether this applies in your state, your state's department of insurance website is a reliable resource.

Meeting your deductible means your insurer starts sharing costs — it doesn't mean your costs stop. Most plans include coinsurance (a percentage of each bill you pay, such as 20%) or flat copays for services, and these continue until you hit the plan's out-of-pocket maximum for the year. Beyond that maximum, the insurer covers 100% of in-network costs for covered services. Understanding these three figures — deductible, coinsurance, and out-of-pocket max — is essential to accurately budgeting for healthcare costs. Our Policy Terms Explained hub defines each of these terms in plain language.