If You’re Not Wealthy, Will You Pay More for Car Insurance?
If you’re not wealthy, you may pay more for car insurance. At least, that’s what a study conducted by the Consumer Federation of America (CFA) shows.
According to the CFA, a 30-year-old man with a perfect driving record and an MBA, who resides in a well-to-do neighborhood in Richmond Heights, Missouri, pays approximately one-fourth of what his counterpart in a lower-income area of St. Louis pays. The study highlights the gap between the two drivers, based on factors totally unrelated to driving behavior – affecting the rates many low- and moderate-income drivers face when purchasing car insurance.
Because insurers use rating factors such as a driver’s geographical location (e.g., his residence), occupation, education, and credit rating, lower-income drivers are penalized. Even if they’ve maintained a perfect driving record and drive relatively few miles, they’ll still pay higher rates.
In 2010, the study found that, in some areas, many responsible lower-income drivers cannot find state-required insurance coverage that is less than $500, and a number can’t find coverage that’s under $1,000 a year for basic liability coverage, providing little or no insurance protection despite the high cost. As a result of the higher rates, 25 to 30 percent of lower-income drivers are uninsured, making it a Catch-22 situation. The high rates keep the lower-income drivers from getting insurance, and the insurance companies continue to pay out an enormous amount of money annually to drivers involved in accidents with uninsured drivers.
The CFA study also points out that in American households with an annual income below $40,000, many lower-income drivers were placed at an economic disadvantage by being forced to pay high insurance rates. About four-fifths of low- and moderate-income households – those in the bottom two income groups with annual incomes below about $40,000 – don’t own a car.
The American Insurance Association (AIA) states there are valid reasons why lower-income drivers may pay more for car insurance than other drivers. Some of those reasons include living in a high incidence area, where property crimes against automobiles might be more frequent. Since insurers have to pay out for damages, they account for that and build it automatically into the rates. In addition, the AIA notes that the place of residence may have a high density of automobiles which, in turn, increases the chances of potential car accidents. This is regardless of having a clean driving record and no previous claims.
While there is no apparent quick fix to the problem, the CFA proposes that state insurance regulators evaluate the fairness of rates charged to lower-income families. Discriminatory treatment aside, it would be a step towards cutting down on costs, by lowering the rates for basic liability coverage, which is required by law in forty-nine states and the District of Columbia. Only the state of New Hampshire has no mandate for the coverage. Regardless of income bracket, education, and occupation, drivers should shop around if they feel their current insurer is taking them for a ride.
Make sure you’re not being taken for a ride…check that you’re getting the best rate on your car insurance. Call USAgencies today at (800) 420-3712 to speak with a live agent and to get a free car insurance quote. USAgencies specializes in providing quality auto insurance coverage at affordable rates. Call now or get your free quote online.