While it is not legal in any state in the United States for insurance companies to consider income when determining insurance premiums, it has become evident that there is a direct correlation between income and the car insurance consumers pay and it isn’t pretty.
Certain groups have asserted for a long time that it is more expensive to be poor and this may just be another area in which that happens to be the case. To fully understand how this could occur, however, more needs to be exposed.
While the driver’s income is not allowed to be considered when determining risk, there are other factors that essentially directly reflect what their income likely is. This includes their credit rating, where they live, their occupation and their education level.
There are many that believe these factors are unfairly used, leading to those with lower incomes paying more for the same car insurance than their counterparts who have an easier time making such payments.
One aspect that is not given as much weight as one might think would logically matter more than the above factors, is how much the individual drives. Those with incomes that are lower than what qualifies as middle class are more likely to qualify as occasional drivers – work close to home, shop locally and generally drive less than half as much as those with higher incomes. This is largely due to the costs involved with driving, such as gasoline and vehicle upkeep. This significantly reduces their overall risk.
There are some organizations that are working to change legislation to require insurance companies to put more weight on factors such as miles driven than other less important factors like occupation and education. They assert that current policies intentionally incorporate an individual’s income, but do so by using other data that indicates what their income likely would be.
Let’s Dig Into Some Interesting Stats:
There is the difficulty for those trying to prove that lower-income drivers are paying more, but a recent study has shown that people in poor areas of California are paying up to 40% more for the same auto insurance, with similar driving records, than those living in areas with higher incomes.
Unfortunately, comprehensive data is not available, and these are simply samples taken for those willing to self-report this information.
In short, there is a high need for more disclosure from insurance companies to prove that their use of data is unfair to those with lower incomes. The assertion is that there is not a higher level of risk insuring them, but they are paying higher rates, essentially subsidizing those that are actually higher risk.
Such a system seems to be just another way that the world is working against those that already struggle to get ahead.