Lower Income Families Struggling and Paying More than Upper Income Drivers

Published in February 9, 2012

Car insurance rates are always the topic of discussion amongst drivers. Some people now feel that poor people pay more for their auto insurance coverage then middle and upper class drivers do.
The group that is alleging this is called The Consumer Federation of America. They believe that state regulators do not assess each person’s insurance policies fairly and that there are regulations that need to be changed.
When a car insurance company looks at a person’s information, they want to assess the risk that the driver poses to insure. For example, if a person lives in a neighborhood with a lower crime rate than they pose less of a risk to insure than a person who lives in an area with more crime.
Many lower income drivers feel that these practices are causing them to be discriminated against. Other criteria that are taken into consideration for a risk assessment include the following: credit rating, education, occupation, and location. Many families who have a household income that is less than $37,000. Car insurance companies cannot ask about a driver’s income when they apply for coverage but most lower income families have poor credit scores and limited educational backgrounds.
One example that the group cited was if a man was 30 years old and had a Ford Taurus with basic auto insurance coverage and drove only 100 miles each week.
If the driver was accident free and had a graduate degree and lived in a nice neighborhood then his auto insurance premiums would be around $558 per month. If the man has only a GED or a high school diploma then he would see his premiums go up by about $70 to $71. If he has lost his job and become unemployment then his premiums would go up by more than $84. Finally, moving to the city would cost him an additional $347 while not paying the coverage in full in one lump sum payment would cost an extra $60.
According to the most recent statistics, because of this development, many lower income families drive while uninsured. Approximately 33% of these families drive while uninsured which is a crime in a majority of the 50 states.
It is hard to adapt the current auto insurance risk formula to make it more fair for lower income families. The formula takes into account many factors so changing a few of them could actually raise premium rates for everyone.
Most drivers have a hard time understanding how their insurance premiums are calculated. Every driver is different and has different data and driving records to have compared by insurance agents.
State insurance regulators should consider meeting with the CFA to discuss how the system can help lower income families so that they can pay less for their car insurance premiums. Most drivers do not want to break the law but honestly cannot afford the coverage that they are offered by insurance companies.
It is a good idea for people to try to work on improving their risk factors before seeking out auto insurance coverage. Pay down your debts, work to try to live in an area with a lower crime rate, and focus on becoming more educated if you can. Change takes time but it is worth it in the long run to get the cheapest car insurance coverage possible.