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Low-Income Drivers Penalized by Auto Insurers

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Americans resoundingly reject non-driving characteristics in determining auto insurance rates.

Chevrolet Malibu

If you’re a low-income American, chances are you’re paying plenty more for auto insurance than other citizens even if you have a similar driving record and home address. Those are the findings of the Consumer Federation of America (CFA) based on a study the non-profit organization released on Monday.

Low Income Status = Higher Insurance Premiums

The CFA evaluated minimum limits liability premiums shared by men and women in 15 cities by five of the nation’s largest auto insurers. Specifically, the CFA found that premiums surged by an average of 59 percent, or $681 annually when characteristics of the drivers were changed to denote a lower economic status. Auto insurance is required in all states with New Hampshire the lone exception. Insurance is regulated at the state level.

“Insurance companies should judge you on how you drive, not who you are,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner. “Insurance companies are penalizing good drivers by hundreds and sometimes thousands of dollars each year based on economic and social status, and the end result is that the poor pay more, much more.”

Five Non-Driving Factors

Auto insurers use five factors when developing quotes for consumers. They are: level of education, occupation, homeownership status, ownership of a car during the prior six months, and marital status.

The CFA found that drivers with the same driving record and living at the same address may pay dramatically different rates, especially if multiple factors are considered. For this study, 15 cities were examined with the five largest auto insurance companies surveyed — Allstate, Farmers, GEICO, Progressive, and State Farm studied.

The study revealed the average premium for all drivers with high economic status indicators was $1,144. On the other hand, the low economic status driver is charged $1,825. That’s 59 percent or $681 more than people with a higher net wealth.

Of the five insurers survey, GEICO (92 percent) and Progressive (80 percent) charge the largest premium increases to lower income drivers residing at the same address. The largest per dollar increases come from Allstate ($915) and Farmers ($900). The lowest increases are assessed by State Farm, which charges $217 more per year or is 13 percent higher.

Your Home Address

Depending on where you live, your auto premium as a low-income driver can come in much higher than average. Drivers in Queens, Jersey City, Boston, Atlanta, Minneapolis, Houston, and Jacksonville face the most significant increases, topping $700 per year versus high-income drivers.

On the other hand, if you live in Los Angeles your rate may average only $80 per year higher, an increase of 9 percent. That’s due chiefly to a 1988 voter proposition passed by Californians whereby non-driving-related factors (except for marital status) could not be considered by the insurance companies.

Survey Says

The CFA authorized ORC International to conduct a poll of 1,000 Americans from June 9-12, 2016, to gauge their opinions about auto insurance. The organization discovered that a large majority of Americans believe that auto insurance premiums should be related to policyholders’ driving safety record and accident history. They also indicated that the insurance companies should not use personal economic factors such as their education or occupation in establishing rates.

In particular, 84 percent of Americans believe that auto insurers are acting very or somewhat fair in using moving violations as a factor in developing insurance quotes. Some 83 percent believe that if drivers are in an accident they caused, then their rates should be reflected accordingly.

When non-driving factors are considered, the respondents shifted their answers dramatically in support of the drivers.

Indeed, only 38 percent believe that credit scores should play a factor in determining insurance rates. Home ownership (35 percent), job occupation (35 percent), and marital status (32 percent) were other factors considered. Only 30 percent agreed that no previous insurance because of no car should be a factor. Some 29 percent thought education level should be used as a determining factor.

“The American people don’t like the idea of insurance companies using personal and economic factors to set premiums, even though most people don’t realize how much of an impact these non-driving characteristics have on the price they pay for coverage,” said the study’s co-author Doug Heller.

In two instances, the insurers bucked the trend, giving lower-income drivers an edge. For instance, Allstate lowered rates by 19 percent for the lower economic status female driver in Chicago and by 4 percent for both male and female drivers in Oklahoma City.

Free Quotes or Not

As is common practice, the insurance companies provide online quotes for consumers, but not always. The CFA has found that if income status is changed from high to low, then online quotes are typically not supplied to the latter. Even with such key factors as address and driver record considered, the insurance companies often refer people to local brokers or to partner companies.

The CFA continues to advocate a state-by-state change to auto insurance underwriting to adopt more equitable methods for determining insurance rates. Because auto insurance is mandated by law in all but one state, then regulators and legislators should protect consumers from unfair practices, including those outlined in its report.

See Also — Car Insurance for the Poor? Good Luck With That.

Buying a Car: Paperwork and Other Documentation

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When closing a deal on a new or used car, paperwork and other documentation must be submitted and completed before the deal is finalized. And the last thing you want is to make a trip to the dealer only to discover you’re short one or more documents. The following list is composed of those items you may need in your possession as you seal the deal.

Hyundai Sonata.

1. A valid driver’s license. You carry your driver’s license with you, but is it still valid? Pull out your driver’s license before you head to the dealer to verify that it hasn’t expired. If it has, then you won’t be driving your new ride home until it has been renewed!

2. Your trade-in’s title. If you’re trading in your vehicle for another one, you need to hold its title. The title is clear for transfer if you own the car outright. Otherwise, if there is a co-signer listed or a lien on the vehicle, you’ll need to settle with this person first. Be careful here — if you make a mistake, you’ll have to touch base with the Department of Motor Vehicle to make a correction, a time consuming task. You might also contact your dealer ahead of time to find out how best to handle the title.

3. Your trade-in’s registration. A title is one thing, but your vehicle also must have a valid registration. Typically, that document can be found in your glove box along with the vehicle’s inspection and insurance information. While you’re at it, verify that the tags affixed to the license plate are current.

Chrysler 300.

4. Current insurance coverage. What you don’t want to do is to drive off the dealer’s lot without insurance. Typically, insurance is required if you borrow money to buy a car. Your lender will insist on coverage and certain inclusions at that. If you pay cash for a car or insurance is not a required purchase consideration, then you’re liable once you get behind the wheel of the car. Contact your insurer and arrange for coverage to commence the moment the deal is finalized.

5. Approved loan documentation. Unless the dealer is working out the loan details on your behalf, you need to do so at your end. Visit your bank or credit union to obtain loan information. At the same time, you can find a car loan elsewhere. Apply for a car loan and once approved, bring your loan documentation with you. If you’re obtaining financing through the dealer, then you’ll need to provide proof of income. Your dealer may also ask for your approval to obtain credit information and may contact your employer to verify employment information.

key lock6. An extra set of keys. Car keys and fobs are not paperwork nor documentation! But if you are trading in a car, the dealer will request all keys be relinquished. How odd it may seem if you have only one key or fob to turn in? Key fobs especially are expensive to replace and the dealer may subtract $200 or more from your trade-in price if you have only one key fob available.

7. Cash on hand. Yes, money also does not count as paperwork or documentation. What it does do is cover those costs not part of your loan package. In fact, it is simply better to pay for tags or other miscellaneous fees separately, instead of rolling those costs into your car loan. Furthermore, if you have down payment funds to supply, then you’ll need cash too. Better yet, leave the money in your checking account and supply a debit card as this works same as cash and offers an automatic receipt.

Final Thoughts

If your deal involves a trade-in, make sure your personal items are removed from the car before you relinquish same.

To sum up, the better organized you are, the shorter your time at the dealership. Unless, of course, you enjoy sitting in waiting rooms watching daytime television drama while your spouse drives home to retrieve the extra keys, the loan documentation, or other paperwork.

See Also — How to Transfer the Car Title of a Deceased Person