There's a lot to juggle when buying and maintaining a vehicle including interest rates, car loan payments, routine maintenance, and of course, car insurance. The last item is one of the most important for responsible car ownership, yet it is causing a lot of confusion among car owners according to a new study by ValuePenguin. Most subjects surveyed thought they had a good grasp on their auto insurance coverage, but their responses revealed they couldn't identify basic car insurance terms.
ValuePenguin Car Insurance Survey Results
How would you score on a car insurance pop quiz? ValuePenguin surveyed a group of 1,000 car owners aged 18 to 74 to gauge how much drivers truly understand their car insurance coverage. The results were not encouraging. On average, respondents only answered 3.8 out of 9 questions correctly, which is a failing grade of 42%.
Percentage of Respondents Who Answered Incorrectly
The participants were asked to define the three main types of car insurance coverage including bodily injury liability, property damage liability, and comprehensive coverage. 76% of respondents answered incorrectly when asked about property damage liability, and 92% didn't know that comprehensive coverage is different from collision and personal injury protection. Bodily injury liability coverage was the most understood type, but 46% were still unable to accurately describe it.
Interestingly, there wasn't a big discrepancy between younger and older drivers when it comes to car insurance knowledge (or lack thereof). An average of 40% to 43% of respondents from each age group provided correct answers to the nine questions. Gen Xers aged 40-45 were the least likely to answer a question correctly, and 43% of millennials gave correct answers, the most of any age group. Perhaps more worrisome than what the respondents didn't understand is what they thought they did.
How Confident Are You that You have Enough Insurance to Pay for Damages?
When asked if they are confident that they have enough car insurance coverage if they got into an accident tomorrow, 71% were very confident they'd be covered, 24% were somewhat confident but not certain, and only about 5% honestly responded that they had no idea. This lack of understanding about car insurance and overconfidence in one's coverage has consequences like surprise expenses when an accident occurs or overpaying for car insurance.
Factors that Impact Insurance Rates are Unclear
The ValuePenguin survey also looked at how well car owners understand car insurance rates and how often they shop around for savings. There wasn't much good news on this front either. The results showed that most drivers don't have a solid grasp of the factors that can influence car insurance costs. 47% of participants believe insurance providers can't use credit history when determining rates, which is incorrect. According to ValuePenguin, having poor credit can raise the cost of auto insurance by 35% compared to someone with excellent credit.
When it comes to saving money on auto insurance, the results show that most car owners don't take advantage of the savings available to them. 83% did not know they can switch insurance providers at any time, regardless of whether their current policy is up for renewal. Additionally, 66% didn't shop around for coverage before renewing their policies with the same company, and 1 in 5 respondents has never taken advantage of discounts to lower their premiums.
Car Insurance Cheat Sheet
We believe that every driver should have a thorough understanding of their car insurance policy including the various types of coverage included and what adequate insurance looks like. We define the major insurance categories below to help you determine how much car insurance coverage is enough for you.
According to Allstate, comprehensive insurance covers any damage to your vehicle not caused by an accident: "Comprehensive, sometimes called "other than collision" coverage, typically covers damage from fire, vandalism, or falling objects (like a tree or hail)." Comprehensive insurance is likely required when leasing or financing a vehicle, but it is optional for drivers that own the vehicle outright.
Property Damage Liability
In most states, car owners are required by law to have property damage liability. This type of coverage pays for another person's vehicle or property damage if you cause an accident. Each state has a minimum mandatory coverage limit, but you can choose to purchase more coverage to avoid out of pocket costs in the event of an accident.
Bodily Injury Liability
If you're at fault in an accident, bodily injury liability coverage pays for the other party's medical expenses, compensation for lost wages, and your own legal fees if you have to go to court. Just like property damage liability, most states require drivers to have this type of coverage as part of the insurance policy.
Collision coverage helps to cover the cost of damages to your vehicle in the event of a collision with another vehicle or object. Similar to comprehensive coverage, this type of insurance is usually required by lenders or leasing companies but is optional when the vehicle is owned outright.
Personal Injury Protection
This type of car insurance covers you and the passengers in your car. If you or any passengers are injured in an accident, personal injury protection will cover the expenses. It can also cover lost wages if you have to miss work.