There’s an unfortunate reality when it comes to auto insurance that many drivers may not be fully aware of: Low-income drivers who have a perfect driving record are charged more for auto insurance than high-income drivers with a spotty driving record.
That’s according to a new study from the Consumer Federation of America (CFA). Released at the end of September, the study found that auto insurance prices across the country are often more closely tied to a person’s economic characteristics than to their accident or ticket history.
“With the exception of the state of California, people who have a perfect driving record, but have social or economic characteristics that are more indicative of lower wealth, will pay more for auto insurance then someone with a higher income, even if that higher income person has driving violations such as speeding, DUI, or an accident,” says CFA’s Doug Heller. “It’s a really surprising and disturbing result, because most people believe that if you drive safely and follow the rules of the road, you’ll pay less for auto insurance than someone who has points on their record.”
The study used two drivers with different socioeconomic characteristics (such as home ownership, education level, and job title), and different driving records, to test premiums offered by the nation’s five largest insurers in 10 U.S. cities. In all, CFA made 600 requests for coverage and was provided 464 premium quotes.
Some of the takeaways of the CFA study include:
Upper-income drivers with DUIs often pay less than good drivers of modest means with no accidents or tickets on their record. In 21 of 30 tests (70%) in which a comparison was possible, a moderate-income driver with a perfect driving record was charged more for basic liability insurance than a high-income applicant who had a recent DUI conviction.
In Atlanta, for instance, Progressive’s premium quote for a moderate-income driver with a perfect record was $1,688, but for an upper-income driver with a DUI it was $958.
Moderate-income drivers with perfect records often pay more than upper-income drivers who caused an accident in which someone was injured. In 20 of 38 tests (53%), moderate-income drivers with clean records were charged more than high-income customers who recently caused an accident resulting in bodily injury.
In Baltimore, Geico’s quote for a moderate-income individual with a clean driving record was $2,612, but for the upper-income applicant with a record of causing an accident in which someone was injured, the cost was $1,886.
Progressive and GEICO consistently offer lower premiums to upper-income bad drivers than to moderate-income good drivers. About 78% of the time, the premium for a basic auto insurance policy from these two companies cost more for a good driver with a moderate income than for a higher-income driver with a recent accident and/or violation.
Of the 100 quotes CFA obtained from the two companies for higher-income drivers who had caused accidents or were convicted of moving violations, in only 22 instances was the driver with the worse record asked to pay more for car insurance than the good driver of modest economic means, states the report.
“Insurance premiums should be based on how we drive, not who we are,” says Heller.
So what can low-income drivers do to combat such practices when it comes to obtaining affordable car insurance? Here are some tips from Heller and also from the New York-based Insurance Information Institute, which was created to improve public understanding of insurance.
One of the biggest mistakes a consumer can make is to select an insurance company simply because you like their advertising.
“Don’t believe the advertising, you have to do some homework. Some companies that promise savings won’t necessarily deliver them,” says Heller. “Shopping around will save just about everybody money. It’s worth it for any consumer who cares about their pocketbook to spend an hour comparing premiums.”
And when making inquiries (and you should obtain quotes from at least three companies), pay attention to the questions insurance companies are asking, Heller adds.
“One thing is for sure – if an insurance company asks you about your occupation or education level or whether you own a home, they’re asking to use that information against you,” says Heller. “They’re generally asking that question because they include that data in their pricing.”
Take a Defensive Driving Course
The common misconception is that defensive driving courses are just for new drivers or people with blemishes on their driving record. But that’s not the case, says Michael Barry, of the Insurance Information Institute.
“I don’t think there’s wide public awareness of the savings you get when you complete a defensive driving course,” says Barry. “Taking a defensive driving course is one way to reduce your insurance cost.”
The amount of savings the course will earn you depends on the insurance company, says Barry, but you’ll definitely see a difference in your premiums.
Ask for Low-Mileage Discounts
For those who may not drive to work or only drive a limited number of miles, insurance companies typically offer low-mileage discounts. Make sure to ask about this option.
“Generally the auto insurer is working on the assumption that you’re driving about 12,000 miles a year,” says Barry. “So if you’re only going 7,000 or 7,500 miles a year, you may be able to save money.”
Insuring both your home and car with the same company will often earn you a discount on both policies.
“Some people have their auto and home insurance with different companies, and there may be good reason for that, but at a minimum you should explore what kind of discount you would get by insuring both with the same company,” says Barry.
However, for those who rent, as opposed to own a home, this is approach doesn’t typically translate into as much savings (because a renter’s insurance policy is far less expensive then a homeowners policy.)
- Related: Best Homeowners Insurance in 2019
Don’t Ignore State-Run, Low-Income Car Insurance Programs
Some of the most substantial savings for low-income drivers can be found via state-run, low-income car insurance programs. The downside here, however, is that only a handful of states offer them.
Both Barry and Heller point to California as a good example of one such program. Established in 1999, California’s Low-Cost Auto Insurance Program is designed specifically to provide income eligible individuals with affordable liability insurance. (The current income eligibility standards include an annual income of $29,700 for an individual, $50,400 for a family of three, and $60,750 for a family of four.)
Barry says only about 12,000 California state residents were taking advantage of the program the last time he looked into it. Some other states with insurance programs for low-income residents include New Jersey and Hawaii.
A Final Word
The cost of auto insurance is continually on the rise. The average auto insurance expenditure in the U.S. rose 3.3% in 2012, from $815 to $841, according to a 2016 report from the National Association of Insurance Commissioners. In 2013 (the latest data available), the average cost was highest in New Jersey ($1,254), followed by the District of Columbia ($1,187), and New York ($1,182). Among the least expensive states, meanwhile, are North Carolina, Nebraska, and Wyoming, with average policies costing around $630.
Short of moving, Heller says your best bet is to shop wisely.
“It’s tough. Shopping around will get us a little bit of the way. But we need regulators and lawmakers to take this seriously,” says Heller. “Insurance is one of the very few products that you’re required by the government to buy, and yet in most states, the government isn’t protecting us from bad pricing practices.”