Does My Income Affect My Car Insurance Rate?

Fran
Fran Majidi
February 4, 2020

As unfair as it may seem, even if you’re a good driver, if you make a modest income, you’re paying more, sometimes much more, for car insurance. It’s not so much that car insurance carriers look at your income and slap on a high rate. There are other factors, like renting versus owning a home, education level and a whole host of other social and economic disadvantages that weigh heavily on your rating.

How can auto insurance companies legally discriminate against people based on income, you’re wondering? Well, they can’t do so legally. In fact, discriminating against someone based on their income is called redlining, which is when insurance companies refuse to insure someone because of the area they live in or because they are part of a group that is considered “high-risk.”

What’s Redlining?

This term is used to point out the practice of refusing to sell insurance policies in certain neighborhoods, often black communities or other communities of color. Even though redlining became illegal, it still occurs, even though most financial institutions deny doing it.

What’s Reverse Redlining?

When insurance companies target non-white communities charging more for services than they normally would, it’s redlining.

If Redlining and Reverse Redlining Are Illegal, How Are Companies Doing This?

The Consumer Federation of America’s director of insurance, Robert Hunter, told the New York Times that “education and occupation serve as surrogates for income.” Basically, they find loopholes to rate higher for economically challenged drivers. In fact, Hunter pointed out that a blue-collar worker with a good driving record pays 59% more a year than a white-collar worker with the same driving record. It’s illegal for a car insurance company to tell a customer that they are too poor to buy insurance from them. Instead, they inflate prices on policies. 

In many instances, the less money a person has, the less likely they are to own a car. Without a car, they cannot be insured, so there’s a lapse in coverage when they are finally able to finance the costs of owning and insuring a vehicle. In a study conducted by The Consumer Federation of America, it was factors like this that created the gap between the average quote for higher-income persons versus the lower-income persons in the study (compare the average of $1,140 a year to $1,825 a year).

In some situations, the study found that the online system declined to quote the lower-income driver. Sometimes, the quote generated was handled by the insurer’s high-risk affiliate, all despite a clean record.

What Are Some Factors that Count Against Lower Income Drivers

  • Lower education level: Insurance companies give discounts to people the more degrees they have. Often, this works against lower income people, who don’t always have college and post-graduate degrees.

  • Residence. If you live in a high-crime area, it may work against you when it comes to car insurance. Usually, people who live in these neighborhoods are lower income.

  • Credit history. Most car insurance companies use your credit score to determine rates. Most people with low credit scores are low-income individuals who don’t have the best bill payment history.

Which Cities Are Insurance Rates Highest for Low-Income Individuals?

  • Atlanta

  • Boston

  • Houston

  • Jacksonville (Fla)

  • Jersey City

  • Minneapolis 

  • Queens (NY)

Tips for Low-Income Drivers

  • Shop car insurance rates before you buy, preferably with a company that compares policies side by side. One insurer may literally charge you thousands of dollars more than another carrier. 

  • Make sure to compare apples to apples when buying insurance. Don’t compare prices on different packages or different tiers of coverage.

  • Be wary of getting transferred over to an affiliate that specializes in high-risk insurance. If you sign on you’ll be paying much more than you should if you have a clean record. 

  • Ask insurers about discounts and try to tack on as many as you can. 

Low-Income Car Insurance Programs

If you’re thinking all car insurance companies are out to get you, here’s some good news. A handful of states have programs to help low-income families with cheap full-coverage car insurance. If you live in one of the following states, you may benefit from a low-income car insurance program.

California:
If you’re a low-income resident of California, you may qualify to participate in the  Low Cost Auto Insurance Program, or CLCA. To be eligible you must have a car worth less than $25,000 and be at least 16 years old.

New Jersey:
The low-income car insurance program in New Jersey is called The Special Automobile Insurance Policy, or SAIP. To be eligible you must be enrolled in federal Medicaid with hospitalization. If you qualify, insurance will only cost $360 ($5 extra if you have to make monthly payments). The policy covers one car per policy.

Maryland:
Low-income drivers in Maryland can apply for The Maryland Auto Insurance Fund, or MAIF. This program is open to anyone who has been turned down by traditional insurance companies. The policy would provide up to $30,000 per person for bodily injury and $15,000 for property damage -- not the highest limits but enough to satisfy state minimums.

Hawaii:
If you’re a low-income Hawaii resident, you may be qualified for Assistance to the Aged, Blind and Disabled Program, or AABD. To qualify, you must be 65 years old or older, legally blind or permanently disable and able to show that your income is 34% of the current Federal Poverty Level. You must have less than $2,000 of assets for an individual and $3,000 for a couple. 

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