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5 auto insurance myths we need to dispel

Car insurance myths

Auto insurance customers need to understand what affects their policies, but oftentimes are left scratching their heads when seeking new coverage.

They don't know their obligations when it comes to car insurance, or worse, they buy into those myths and purchase the wrong coverage.

Take a look at five of the biggest auto insurance myths plaguing customers.

1. The minimum liability coverage is enough

This one's a big myth, says Matt Hylland, a financial adviser with Hylland Capital Management.

All states and Washington, D.C., require liability coverage except New Hampshire. However, the minimum required could be as low as $15,000, Hylland says. In an era of rising medical costs, that can go very quickly. If you're at fault in an accident and the costs are greater than your policy's limit, you'll be on the hook for the remaining amount.

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"Many choose just the minimum level of coverage in order to reduce their rate," Hylland says. "This is not a place to skimp to try and free up a few dollars in your budget."

The Insurance Information Institute recommends $100,000 in bodily injury coverage per person and $300,000 per accident. Depending on your driving history and where you live, hiking your bodily injury coverage from $20,000 to $300,000 per accident could cost as little as $25 per month.

2. The color of your car can hike insurance costs

Some policyholders are convinced having a candy-apple red car leads to higher car insurance premiums. Experts rate this claim "false."

"Insurers base your rate on the safety record of your vehicle, the cost of repairs and your driving record," says Patti Clement, senior vice president at HUB International, an insurance brokerage. "Since car color doesn't have any statistically significant effect on accidents, it isn't factored into their calculations."

3. You have a company car, so you don't need personal coverage

When your company provides you with a car, your liability coverage most likely isn't included, says Bruce Kestenbaum, general manager at Elder Insurance Services in Tampa, Florida.

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"It may not be enough, or you could be sued personally in a bad accident," he says. "If you borrow or rent a car, you should have your own protection. Being listed on another auto policy isn't enough to protect you."

If you do have a business auto policy, consider adding personal coverage or getting a separate policy for yourself.

4. Any personal property inside your car is covered

Your automobile policy doesn't cover the belongings in your car -- only the vehicle and its permanent attachments, says Larry Siembab, senior director of insurance at CARSTAR.

Gadgets, golf clubs, garments and anything else hanging out in your trunk would be covered by your homeowners or renters insurance policy, not the auto insurance policy, Siembab says.

5. You're covered by your regular policy when renting a car

This can be true, but always check your policy for coverage when you plan to rent a car.

"Most personal policies cover rental vehicles, but only for the terms and limits of your personal auto coverage," Siembab says. "If you have no collision coverage on your personal auto policy, you won't have collision coverage on the rental vehicle." So consider buying the additional coverage in this case.

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