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Does Education Affect My Car Insurance Rate?

Fran
Dani Milton April 3, 2019

Most drivers realize that a single-car accident or DUI conviction can dramatically raise their car insurance rates. But most people don't know insurers also consider drivers' education and occupations when calculating car insurance rates. 

Although insurance companies use different formulas to determine risk, most are similar in breadth and scope. Risk management is a number one priority for insurance companies and their agents, too.

Car insurance companies need to sell more low-risk policies than higher-risk ones to stay afloat.

There are many factors that carriers use to evaluate car insurance premiums. They use the following factors to determine a fair rate, including the garaging address, driving record, what type of car you drive, age and education.

Everything on this list seems pretty obvious, except for education, right? Many people don't know that their degree (or lack thereof) helps set their auto insurance rate.

Studies show the more education a driver attains, the fewer accidents the person has. No wonder then that some agents ask you how many degrees you have.

Not only do excellent students get a discount on car insurance, but if you have a master's or Ph.D., you're paying a bunch less too. If you're wondering why, we have answers.

Is it Fair that Insurance Companies Rate Degrees Favorably?

You may be one of many people who believe that it's discriminatory to charge people more for not having a college degree. It's similar to redlining and insurance company's history of singling out African-American and Latino-American communities for higher auto insurance rates (now illegal).

Some states have tried to ban the use of education levels as a factor in quoting, but they have failed. In this article, we're going to tell you how to beat the system.

Are you're searching for more affordable car insurance rates? An online insurance comparison engine, like SmartFinancial, can save you up to 40 percent on your car insurance premiums. Just enter your zip code on this page to get started.

Consumers with Less Education Receive Higher Auto Insurance Rates in Many States

Your car insurance rates have less to do with your behavior on the road and more to do with socioeconomic factors such as your education, occupation or credit score, according to a 2015 Consumer Reports report.

These rating factors can have a bigger impact on your car insurance premiums than your speeding tickets or how many miles you drive.

A recent 2021 Consumer Reports study tracked how a driver's education affected their car insurance quotes. The organization collected 869 online policy quotes from nine auto insurers in 21 zip codes and six states and Washington, D.C.

The organization used the profile of a hypothetical 30-year-old woman driver who owns a 2016 Toyota Camry who has a clean driving record who was shopping for her state's minimum required coverage.

The advocacy group learned some car insurance companies provided preliminary quotes that were more expensive on average when a person had less education.

It also found that applicants had higher quotes if they were blue-collar workers (for instance, a cashier) versus an executive. Some carriers charged $31 - $97 more annually, depending on the person's profession.

At one company, a hypothetical cashier without a high school degree received an annual premium that was $455 higher than a person with an executive title and advanced degree.

A Consumer Federation of America study also found that auto insurers charge higher premiums for minimum coverage to most low-income workers.

ORCI also conducted a survey about the use of a person's education or career to set car insurance rates. They used a representative sample of 1,010 American adults. Their study found:

  • 68% said it was unfair to use a person's education to set their car insurance rates
  • 65% said it was unfair for carriers to use a person's occupation to set auto insurance rates.

The margin of error for this study was plus or minus three percentage points.

How Does Your Occupation and Education Level Affect Your Insurance Rates

CR researchers say using rating factors can affect low-income consumers. Consumer advocates claim that some car insurance companies price low-income drivers out of auto insurance coverage because these car insurance companies judge them on factors other than their driving history.

The advocacy group said when insurers consider other non-driving factors, like education, jobs or credit scores, the additional costs are expensive. They discovered that a poor credit score could increase a person's rates by $500 to $2,000 more than a person with the same driving record and excellent credit.

CR researchers said it was a troubling finding since these costs magnified the economic impacts of systemic racism.

Its report said people of color generally have less access to adequately funded primary and secondary schools. Its study said this diminished access leads to unequal outcomes in education and the labor market.

How Insurance Companies Determine Which Customers Will Shop Around Based on Education

Price optimization is a hidden practice that insurance companies use to set rates. According to the Consumer Federation of America, the auto insurance industry realizes that low-income customers are less likely to shop around for better prices because of lower financial literacy.

Additionally, the consumer group says these rating factors are more likely to hurt low-income drivers with negative marks because they're single, have limited education, poor credit, or live in an unsafe neighborhood.

Insurance experts realize this and increase premiums on these individuals because they'll likely stick with their first choice rather than visit a competitor.

They implement price optimization on several factors, such as occupation, education level, credit history and other factors related to wealth, instead of driving safety.

Why Do Carriers Charge Higher Rates to Blue Collar Workers or People with Less Education?

Some car insurance companies charge more to individuals who can least afford it. Carriers openly admit they charge drivers with less education or certain occupations with more money. For instance, a person with a GED may pay more than a college graduate with a bachelor's degree.

The insurance industry argues that people with less education file more claims than those who attended college.

During an interview with PEW Charitable Trust, former Insurance Information Institute President Robert Hartwig defended the practice. The economist argued that price optimization has lowered premiums for customers by stabilizing prices.

Hartwig said auto insurance rating factors, like education, occupation and credit history, are legitimate factors to estimate drivers' financial risk to insurance companies. The president said insurance industry studies have backed up this claim.

Paying Too Much for Car Insurance? Find Out

Which States Allow or Ban the Use of Education to Set Rates?

Currently, 46 states (and Washington, D.C.) allow insurers to use drivers' education and occupations to set their auto insurance premiums. 

Only four states prohibit insurance carriers from using this practice. They include:

  • California
  • Massachusetts
  • New York
  • Michigan

New Jersey and Rhode Island have attempted to use their judicial system to ban education as car insurance rating factors. Their efforts have been unsuccessful so far.

Consumer Reports sent letters to auto insurance commissioners in the other 46 states and Washington, D.C., urging them to stop using educational attainment to set car insurance rates.

What Can I Do if I Don't Have a College Degree?

It may not seem fair to use your education to determine your car insurance rates. To protect yourself from rate hikes, the best you can do is shop around for a better premium. First, get quotes from different insurance companies.

Whenever you speak with an insurance agent, ask if their carriers use education or occupation as rating factors to determine their auto insurance premiums. If they don't know, speak with the company's customer service representative.

Continue to shop around until you find a carrier who doesn't use education to determine your rates.

Five car insurance companies don't ask prospective customers about their career or education levels. These insurers are: 

  • Allstate
  • NJM Insurance
  • Plymouth Rock
  • State Farm and 
  • Travelers

Additionally, you can also use an online car insurance comparison tool, like SmartFinancial, to search for better rates. These tools can save you up to 40 percent on your rates based on your driver's profile. To get started, enter your zip code on this page.

I Have a College Degree? Can I Take Advantage of These Price Cuts?

If you have a bachelor's degree or a master's, the next time you renew your car insurance, ask your car insurance agent if your insurer takes your degrees into account when setting your rate. If your agent says that they don't consider higher education to calculate auto insurance rates, find a carrier that does.

In short, if it's in your favor, use this factor to your advantage. If it works against you, make sure it's not a factor in determining your risk. It may take a little more footwork, but if you're working with a company like SmartFinancial, shopping for an insurance agent is easy.

Car Insurance Discounts for Students

Whether you're in high school or college, if you are a good student, you can benefit from a discount on your auto insurance because, again, students who excel in school are lower-risk drivers.

Keep in mind that young drivers (age 16 to 25) pay 80% more in car insurance. This situation makes every possible discount matter, especially a good student discount, which can cut 10 to 15% of your monthly premiums. Also, rate increases differ based on the state in which you live.

The good news is that most car insurance companies offer discounts to students with 3.0 GPAs or better. Standardized test results can also be the source of a nice discount.

If you scored well on the SAT, ACT or PSAT, show your scores to your insurance agent. Besides good grades and scores, a class ranking in the top 20% of your class is helpful.

Car Insurance Discounts for Student Drivers

Company

Distant Student

Driver's Education

Good Student

New Graduate

Student/Alums

AAA

Yes

Yes

Yes

No

No

Allstate

Yes

Yes

Yes

No

No

Farmers

Yes

Yes

Yes

No

No

Nationwide

Yes

No

Yes

No

Yes

State Farm

Yes

Yes

Yes

No

No

USAA

Yes

Yes

Yes

No

No

Tips for College Students with a Car

Did you recently leave home to attend college? Not only should you tell your auto insurance agent that you are a college student, but keeping your grades up will help too.

You may be able to get a much cheaper rate if you stay on your parents' policy. Even though adding you to their policy will raise your parents' rate, it will cost less than getting your own policy.

If you are attending college away from home, check to see if you're covered by your parents' insurer in the state where you attend school.

You may be eligible for a Distant College Student Discount if you attend a school that is more than 100 miles from home, and you leave your car at your parents' home.

Does Driving School Bring Down Car Insurance Rates?

Yes, most car insurance companies will lower your premiums if you have a driver's education certificate or proof of enrollment in some type of driver training program.

Find out if you can sign up for one for free through your school. Even if you have to pay to take a class, it's often worthwhile, since it results in car insurance discounts and premium savings.

Some insurance companies, like State Farm, also have their own driver training programs. Ask your car insurance agent if your carrier has driving courses that you can take. If not, ask if you can get a discount if you search for a driver training school on your own.

Other Discounts that May Apply to Your Car Insurance

While there's no guarantee that your insurer offers these specific discounts, they do exist. It never hurts to ask your insurance agent about these:

  • Sorority/Fraternity Discount
  • Honors Society Discount
  • University and Alumni Discount
  • Military Discount
  • Safety Equipment Discount
  • Occupation/Association Discount
  • On-Time Payment Discounts
  • Mature Driver Discount
  • Bundling Discounts (bundle auto with home or with renters or commercial insurance)

Happy shopping, and we look forward to serving you with the best auto insurance agent. Just enter your zip code below to get the lowest rates available in your area.

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