Editor's note: This article first appeared on iii.organd is reprinted here with their permission. Click here for the original post.

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When purchasing car insurance, it's important to understand thefactors that affect your car insurance premium rates and coverage.But how do you differentiate between truth and fiction? A goodplace to start is by dispelling some common myths about autoinsurance.

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Myth #1: Color determines the price of autoinsurance

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It doesn't matter if your car is red, green or purple. What doesmatter is the type of car you select. Before you buy a new or usedcar, check into insurance costs. Auto insurance premiums arebased on make, model, body type, engine size, the age of thevehicle and the age, driving record and credit history of thedriver. Premiums are also based, in part, on the car's stickerprice, the cost to repair it, its overall safety record, and thelikelihood of theft. Many insurers offer discounts for featuresthat reduce the risk of injuries or theft. These include daytimerunning lights and anti-theft devices.

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[Related: 10 factors that affect your car insurancerates]

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For years there has been a notion that color plays a significantpart in calculating insurance premium costs, many people believingthat red cars cost more to insure because they are linked toaggressive driving or speeding. The fact is, insurers have nointerest in the color of a car, but they are interested in knowingif you have had any previous car accidents, the number of miles youdrive annually and where you live.

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older woman in hat and sunglasses driving a car
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(Photo: Shutterstock)

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Myth #2: It costs more to insure your car when you getolder

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Quite the opposite—many drivers over 55 years of agecan, in fact, qualify for a reduction in auto insurance rates,typically for three years, if they have successfully completed anaccident prevention course. Insurance companies will usuallyprovide up to a 10% discount on car insurance, but check with yourprovider before you sign on.

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Mature driving courses are available through local and stateagencies as well as through the AAA and AARP. You can also checkwith your insurance agent to find out which defensive drivingcourses are approved by your insurer. If you are retired or are notemployed full time, you may also be eligible for a discount of upto 5% off your car insurance. Age requirements for this type ofdiscount vary by state and insurance carrier.

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man selecting credit score on a screen

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(Photo: Shuttterstock)

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Myth #3: Your credit has no effect on your insurancerate

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Your credit-based insurance score does matter. An insurancescore is a measure of how well you manage your financial affairs,not your financial assets. Many insurance companies take yourinsurance score into consideration when you want to purchase,change or renew your auto insurance coverage. Because the majorityof people have good credit, and insurance scores are derived from aperson's credit history, most people pay less for insurance wheninsurance scores are entered into the pricing equation.

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tree branch damage to car

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(Photo: Shutterstock)

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Myth #4: Your insurance will cover you if your caris stolen, vandalized or damaged by falling tree limbs, hail, floodor fire

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Comprehensive and collision coverageare optional coverages. Lenders frequentlyrequire drivers to buy comprehensive and collision coverage as acondition of a car loan agreement. Those driving older carssometimes drop these coverages as a way of saving money.

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If a car is worth less than $1,000 or less than 10 times theinsurance premium, purchasing the optional coverages may not becost effective. But bear in mind that you need to purchase bothcollision and comprehensive coverage in order to fully protect yourvehicle from all types of damage.

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car crash

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(Photo: Shutterstock)

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Myth #5: You only need the minimum amountof auto liability insurance required by law

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Almost every state requires you to buy a minimum amount of autoliability coverage. Chances are that you will need more liabilityinsurance than the state requires because accidents often cost morethan the minimum limits. In today's litigious society, buying onlythe minimum amount of liability means you are likely to pay moreout-of-pocket for losses incurred after an accident—and those costsmay be steep. The insurance industry and consumer groups generallyrecommend a minimum of $100,000 of bodily injury protection perperson and $300,000 per accident.

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woman borrowing a car

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(Photo: Shutterstock)

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Myth #6: If other people drive your car,their auto insurance will cover them in the event of anaccident

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In most states, the auto insurance policy covering the vehicleis considered the primary insurance, which means that the owner'sinsurance company must pay for damages caused by an accident.Policies and laws differ by state, and you should be familiar withthese differences when allowing another person to drive yourcar.

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military man in uniform with son

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(Photo: Shutterstock)

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Myth #7: Soldiers pay more for insurancethan civilians

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If you are in the military—regardless of which branch—you mayactually qualify for a discount on some auto insurance. In somesituations you might be able to have your commanding officer make aphone call on your behalf, but for most auto insurance companies,you will need to supply documentation that lists your name, rankand the time that you will be enlisted in the service. This allowsinsurance companies to determine how long you will be eligible toreceive a military discount. Many auto insurance companiesprovide discounts for former members of the military as well astheir families.

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cowboy backing up vehicle
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(Photo: Shutterstock)

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Myth #8: Personal auto insurance coversboth personal and business use of your car

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If you are self-employed and use your vehicle for businesspurposes, personal auto insurance may not protect you. While autoinsurance geared for businesses can be more costly than a personalpolicy, one of the best ways to keep your auto rates down is byhaving a good driving record. If there are others, such asemployees, using your car make sure they also have good drivingrecords. Check the records of your employee drivers at least twicea year to ensure they maintain a clean driving record.

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[Related: 10 horrible decisions that will mess up yourclient's car insurance]

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