ValuePenguin quizzed more than 1,000 respondents on the specifics of liability and comprehensive coverage, finding that — in most cases — the general population is misinformed about auto insurance. Just more than half (54%) knew how bodily liability coverage works. And when we asked about property damage liability and comprehensive coverage, just 24% and 8%, respectively, were able to describe these forms of insurance correctly.
Although 71% of respondents for ValuePenguin's auto insurance literacy quiz said they were very confident they had enough insurance coverage to pay for damage to their vehicles, their answers to questions about the details of their protections and how their rates are determined suggested they may have a false sense of security.
- The average American flunked our auto insurance literacy quiz. Respondents on average answered 3.8 out of 9 questions correctly, resulting in a grade of 42%.
- While more than half knew what personal liability was, only 8% knew what comprehensive car insurance was, while 24% could correctly define property damage liability.
- 71% of respondents were very confident that they had enough car insurance to pay for any damage, while another 24% were somewhat confident.
- Few people admitted they had lapses in their auto insurance knowledge, as only 19% on average said they didn't know about the different forms of auto insurance covered.
- 2 in 3 consumers didn't shop around for a better deal the last time their auto insurance policy was up for renewal. That percentage jumps to 76% for baby boomers and 73% for Generation Xers.
There's much uncertainty about what car insurance covers, despite the confidence most respondents expressed
When asked how confident they were that they had enough insurance protection to be able to pay for damages from a car accident, most people believed they did. In fact, 71% were very confident they'd be covered, while another 24% were somewhat confident but not certain. Conversely, only about 5% said they had no idea.
Despite this overwhelming feeling of confidence, substantial portions of the population don't understand how car insurance works. Fifty-four percent of respondents accurately described bodily injury liability coverage as a protection that pays for another driver's personal expenses after an accident, which is mandatory in every state except Florida. However, respondents best understood this type of coverage compared to the others discussed.
When asked about property damage liability, which pays for damage to someone else's car or another type of property after an accident, 76% answered incorrectly. Similarly, only 8% of people knew how comprehensive coverage was different from collision and personal injury protection, which both deal with accidents.
Only 19% to 20% of respondents on each of these questions admitted they had no idea how these coverages worked. But even when they didn't know how auto insurance worked, respondents operated on mistaken ideas as if they did. They are unknowingly leaving themselves susceptible to surprise expenses after an accident.
Additionally, when they were asked about how their coverage would apply in certain scenarios, few people knew how their insurance would react after a claim.
Forty-six percent of respondents weren't sure if their auto insurance would cover them if a friend got into a wreck driving their vehicle. And 51% mistakenly believed their insurance would pay for damages if they were hit by an uninsured driver. Finally, almost two-thirds believed erroneously that their car insurance would replace items, such as laptops, that were taken from their cars.
Generally, there wasn't much difference between how well different age groups understood auto insurance. An average of 40% to 43% of respondents from each age group provided correct answers to the nine questions. Gen Xers were the least likely to answer a question correctly — 40%, on average. Conversely, 43% of millennials gave correct answers — the most of any group.
Consumers' lack of understanding about car insurance is costing them significant potential savings
Evidence shows that many consumers lack a complete understanding of the factors that could influence the cost of auto insurance they pay. Nearly half (47%) mistakenly believe insurance providers can't use credit history when determining a price. In fact, in most states, having poor credit can raise the cost someone pays for auto insurance by 35% compared with someone with excellent credit.
The majority of respondents — about 83% — did know they could switch their car insurance carrier anytime, regardless of whether their insurance was up for renewal. ValuePenguin recommends against automatically renewing with one insurer without first comparing the cost of auto insurance between a few providers to get the cheapest rate. This is because the cost of coverage between the highest and lowest prices in a state or region can be hundreds of dollars apart.
For instance, car insurance in Michigan tends to be the most expensive in the country. However, while the priciest insurer charges about $13,600 a year for minimum coverage, the cheapest insurance provider offers quotes for about $1,300 yearly. By settling on a provider without comparing quotes, a driver could lose $12,300 a year.
At the same time, while most knew they could switch their insurer to another provider, 66% didn't shop around for coverage before renewing their policies with the same company. Additionally, 1 in 5 respondents has never taken advantage of discounts to lower their premiums.
Older Americans were the most likely to miss out on car insurance savings. Three-quarters of baby boomers didn't compare car insurance prices before renewing. This percentage was 73% for Generation Xers. Likewise, baby boomers tended to miss out most on discounts, with about 24% reporting never having used any insurance discounts.
How to better understand auto insurance coverage
It's important to understand your auto insurance coverage before settling on a policy. You wouldn't want to purchase coverage and get into an accident before finding out that you didn't, in fact, buy the right insurance to cover your specific needs.
Generally speaking, if you want more protection, you should consider a full-coverage auto insurance policy. This type of coverage offers more protection besides what's legally required where you live, including comprehensive, collision and uninsured motorist coverages.
With a full-coverage auto insurance policy, you're more likely to be covered against damage, such as falling tree limbs or weather conditions. However, you should verify by reading your policy or speaking to an insurance representative to make sure there aren't gaps in your coverage.
ValuePenguin commissioned Qualtrics to conduct an online survey of 1,034 Americans, with the sample base proportioned to represent the overall population. The survey was fielded Oct. 2–6, 2020.
Generations are defined as the following as of October 2020:
- Gen Zers: Ages 18 to 23
- Millennials: Ages 24 to 39
- Gen Xers: Ages 40 to 54
- Baby boomers: Ages 55 to 74