How Does Your Income Affect Your Insurance Rates?
How does your income affect your insurance rates? A recent study done by the CFA (Consumer Federation of America) shows that car insurance companies, on average, will charge you more money if you have a lower income. Many responsible, hard-working, yet lower-income individuals are forced to spend over $1000 more (annually) than their wealthy counterparts for the same insurance coverage. Read on to learn how the insurance companies assume your income level without asking direclty for it.
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UPDATED: Oct 30, 2020
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The formula for determining your auto insurance rates is a long and complex one that even rocket-scientists would have a hard time cracking. As more studies are done and more data is analyzed, however, a strong correlation between your income and the amount you pay for insurance is starting to be discovered.
There are lots of factors that can have an effect on your auto insurance premiums. The more well-known ones are:
- Age – Younger drivers are less experienced, and therefore a greater hazard on the road.
- Gender – Women are statistically safer drivers, so insurance companies give them more leeway.
- Marital Status – For some reason, insurance companies view married couples as being more stable, and thus give them cheaper quotes.
- Geographic Location – Live in a safe area? Get cheaper auto insurance.
- Traffic Violations – If you have gotten a lot of tickets, you will get higher insurance rates.
- Vehicle Make and Model – Drive a safe car and pay less for insurance.
- Credit Score – If you are a high risk to credit agencies, you are a high risk to insure. Insurers will look at both your credit score and your insurance score.
One more factor that has been found to determine how high your premiums will be is your income. Recent studies have shown that THERE IS a direct correlation between how much money you make and how much you will pay for car insurance.
A recent study done by the CFA (Consumer Federation of America) shows that car insurance companies, on average, will charge you more money if you have a lower income. In other words, if you are poor, expect to pay out the nose. Stephen Brobeck, executive director of the CFA, says that many responsible, hard-working, yet lower-income individuals are forced to spend over $1000 more (annually) than their wealthy counterparts for the same insurance coverage.
Why Poor People Pay More For Auto Insurance
The study, which took results from more than one hundred auto insurance studies to draw its conclusions, shows that while insurance companies do not directly ask for your income to determine your rates, they use other round-about methods to get it. For example:
- Insurance companies look at your education level. Low-income people usually are not highly educated.
- Insurance companies look at where you live. Low-income people usually live in areas with high crime.
- Insurance companies look at your credit history. Low-income people usually have poor credit scores or no credit scores.
So while insurance companies do not directly factor income into their equation (they aren’t even allowed to), they use other methods to indirectly factor it in. And because of this, when it comes to getting cheap auto insurance rates, the odds aren’t in favor of people with low income.
It is, in fact, illegal for insurance companies to charge the poor higher rates for auto insurance. This action, known as “redlining,” is more or less a kind of discrimination in the insurance industry. What redlining is, is when insurance companies refuse to insure somebody because they live in an area or are part of a group that is determined to be “high risk.”
Insurance companies will not flat-out say “Sorry, we can’t insure you, you are too poor!” or “Sorry, we can’t insure you, you live in a poor neighborhood and it’s too risky!” The reason for this is because it is illegal for them to do so. What they will do, however, is to grossly overprice insurance for people that fall into these categories. They will overprice it so badly that it’s almost impossible to afford. I mean, what kind of person on a $30,000/year salary would be able to pay $300/month for insurance?
(To read more about discrimination in the auto insurance industry, read our study, “Do African-Americans pay more for auto insurance?”)
To refute this claim that unfair and illegal practices are used to discriminate against low-income individuals, insurance companies will say that they do not base their premiums based on income. They say that it is only a coincidence that poor people pay more for auto insurance.
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How Can You Get Affordable Insurance Despite Your Income?
Coincidence or not, low-income individuals and families, on average, pay more for auto insurance than the wealthy. That is a fact. Now, if you happen to be someone with a low-income, that does not necessarily mean that you need to pay higher car insurance rates. It simply means that you need to know where to look to get these cheaper rates.
Many sites, such as this one, offer auto insurance quote comparisons to help you find the best insurance rates for you and your family. Just because you are poor doesn’t mean that the insurance companies should be able to take even more from you! 4AutoInsuranceQuote.com, when offering you an insurance quote, DOES NOT USE income or credit score when determining your rate.