Car Insurance for the Poor? Good Luck With That.

Renters may pay much more for their auto insurance coverage than do homeowners.

If you’re a low-income individual, more than likely you rent your home and don’t own it. Even if you’re a good driver, obtaining affordable car insurance is more costly for renters, than for homeowners, a fact recently uncovered by the Consumer Federation of America (CFA).

money tussleIndeed, in a press statement released on Monday as well as in an accompanying media teleconference, two CFA representatives — Bob Hunter, Director of Insurance and Doug Heller, Insurance Consultant — articulated just how much more the renting poor may pay for their auto insurance.

Higher Rates Even for Good Drivers

CFA research was conducted to determine what those differences might be, finding that renters pay 7 percent per year more on average than homeowners. That translates to $112 annually, not a small amount for people of limited means.

Auto insurance companies have long used home ownership as one criteria for determining rates. Other factors may include an individual’s credit score, zip code, education, occupation, the type of vehicle driven, and driving record. Thus, consumers not only pay more for their auto insurance because they rent, but likely far higher than that when other factors are taken into consideration by insurers. By the way, uninsured motorists comprise one of eight drivers in the US, according to the Insurance Information Institute.

Renters already carry a burden when it comes to their finances. According to 2013 Federal Reserve Bank data, the average annual income for renters in the US was $27,800 compared with $63,400 for homeowners.

“To raise people’s auto insurance premium because they can’t afford to buy their homes unfairly discriminates against lower-income drivers,” said J. Robert Hunter, CFA’s Insurance Director and the former Insurance Commissioner of Texas. “A good driver is a good driver whether she rents or owns her home. Insurance companies should not be allowed to target people based on homeownership status.”

Minimum Limits Liability Coverage

The CFA surveyed minimum limits liability coverage in 10 cities scattered across the United States and chose the seven largest insurers for the analysis. The seven insurers were: State Farm, Geico, Allstate, Progressive, Farmers, Liberty Mutual, and Nationwide.

To determine the insurance rate, the CFA utilized each company’s website to acquire two premiums in each city for a sample 30-year-old female motorist with a perfect driving record and a 2005 Honda Civic to insure. Both premium inquiries were identical, save for one category — whether she rented her home or owned it.

While most of the increases for the renter came in single digits, there were several outliers that raised rates by double digits, including by 47 percent for Liberty Mutual customers in Louisville, Kentucky. In effect, the sample owner of the Honda Civic would have been charged $768 per year more than had she owned her home.

Notably, Liberty Mutual was far more likely to charge renters more for their auto insurance than any other company, tacking on $307 per more per year on average. On the other hand, Geico did not use homeownership as a criteria for renters, thus rates for renters and homeowners were the same. Curiously, Allstate actually provided renters with lower insurance rates than for homeowners in Chicago, coming in at 11 percent lower.

The CFA provides a pair of tables showing the annual premium charges in total dollars and percentage by company in each of the 10 cities. The organization also checked rates in an eleventh city, Oakland, California, confirming that auto insurance rates for homeowners and renters were the same. That’s because California law prohibits insurers from setting rates based on home ownership, something the CFA would like to see the other states follow.

Advocating for the Poor

“Using customers’ homeownership status to determine premiums is another way in which insurance companies are piling on lower-income Americans,” said Douglas Heller, a consumer advocate who worked with CFA’s Michelle Styczynski to analyze the data in the study released today. “With all these different rating factors that have nothing to do with driving, auto insurers are charging good drivers hundreds and sometimes even thousands of dollars extra just for being poor.”

Hunter concluded that while people may have a choice whether to own or rent a home, they aren’t given that choice when it comes to purchasing car insurance. “State Insurance Commissioners and elected representatives should step in and stop this practice,” said Hunter.

The CFA representatives concluded by stating they plan to forward their findings to each state’s insurance commissioners and urge them to eliminate the gap between homeowners and renters.

Charts and date courtesy of the Consumer Federation of America (CFA).


See AlsoLow-Income Drivers Penalized by Auto Insurers

Author: Matthew Keegan
Matt Keegan has maintained his love for cars ever since his father taught him kicking tires can be one way to uncover a problem with a vehicle’s suspension system. He since moved on to learn a few things about coefficient of drag, G-forces, toe-heel shifting, and how to work the crazy infotainment system in some random weekly driver. Matt is a member of the Washington Automotive Press Association and is a contributor to various print and online media sources.

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