Car insurance is a necessity. No one enjoys spending money that they can only recoup when something bad happens.
However, car insurance can be an inhibiting process for those on a low income. Many of the actuarial calculations that car insurance companies make are directly correlated with income, meaning that a low income will make premiums higher. As a result, governmental bodies have intervened in order to subsidize car insurance for those on a low income.
Despite this contradiction, there is a wide range of options for those who want car insurance but have a low income.
This guide will talk about why car insurance is higher for those on a low income and will give tips on what steps you can take to reduce your premiums and make car insurance more affordable.
By being smart, either with your financial or driving decisions, you will be able to get on the road with an affordable insurance policy.
Income-related premium factors
Interestingly, not only will a low income make it harder to afford insurance, but it may actually increase the cost of your premium. Insurance companies factor in a number of different metrics when calculating your premiums, and several of these are either directly or indirectly affected by your income.
Your credit score is one of the biggest determinants of how much your insurance will cost. The Federal Trade Commission showed that drivers with a low credit score (525 or below) were more likely to file a claim. The outcome of this is that those with a low credit score will have a premium twice as high as those with a score of 825 or above.
According to research by TheZebra, the average annual premium broken down by credit score is as follows:
average annual premium ($)
Insurance rates also vary by zip code, indicating that those who live in low income areas may risk higher premiums based on their residency.
Since those on a low income are more likely to claim, the insurance company will assume that you are too.
Education level, while not a perfect indicator, correlates with both income level as well as insurance premiums. As your education level goes up, you’re more likely to have a higher income, and, your insurance premium is likely to go down.
For example, a PhD will reduce your insurance by $36/year on average (much less than the cost of getting your PhD).
TheZebra research shows that average premium costs by education level are clearly related.
average annual premium ($)
While this has less of an effect than credit score, it shows that completing at least a bachelor’s degree will reduce your premium, particularly when combined with the other factors mentioned above.
Insurance companies like to know that you have a long and solid history of insurance coverage and that you have more than the bare minimum of coverage.
If you have gaps in your insurance – for example, if you went through a period without owning a car (and therefore didn’t require insurance) – this will reflect in your premiums.
The cheapest premium will be for those who can demonstrate the longest period of extensive coverage.
Owning a home is, for an insurance company, preferable than renting a home. Owning a home shows that you are unlikely to move away suddenly, you are financially stable, and that your car is more likely to be parked in a secure location.
Those who rent are likely to see a slightly higher premium than those who own a home.
What are my options?
So, if you are a low income consumer, what are your options?
Luckily there are ways that you can mitgate the impact of a low income when it comes to your insurance premiums. It’s unlikely that you will be able to achieve the premium levels of someone with a perfect credit score, who owns their own home, and has a PhD, but you will be able to reduce the cost of your premium with some savvy work.
It almost goes without saying that you should shop around in order to reduce your premium. Using an online tool will give you an easy way to examine different options. Alternatively, use an independent insurance broker to walk you through your options.
Try a few different combinations of coverage types and deductibles to get a broad range of options.
Get every discount
Most insurance companies have special discounts or ways you can reduce your rate. It pays (literally) to ask your insurance company about any of the options below.
A multi-policy insurance means that you bundle together your insurance policies with the same company. For example, if you have renters insurance then you can buy this from the same company at the same time as your car insurance, and you’ll get a discount for doing so.
TheZebra found that combining different types of insurance has a major knock-on effect on car insurance premiums.
average annual premium ($)
Defensive driver courses are available throughout the United States. Taking one of these courses demonstrates to the insurance company that you are more proficient than the average driver, and can reduce your premium.
Be sure to check with your company that the course is credentialed in advance of signing up.
You should also check that the course is not more expensive than the prospective reductions in insurance premiums.
Installing additional safety equipment is a low-cost way to reduce the risk to the insurance company.
For example, if you were to install an alarm system in your car, you would make it less likely that someone will steal it, and therefore less likely that the insurance company will need to pay out on a claim. Similarly, installing airbags, or even a tracking device in your car, will reduce your premiums.
Good student discount
For teenagers, insurance premiums can be extremely high. However, many car insurance companies offer options whereby those who have an average GPA of a B or higher can receive reduce premiums.
You’ll need to send your transcript to your insurance company every year to get the discount.
Similarly, if you’re planning on going away to college and not taking your car, let your insurance company know. This reduced use will diminish your premium – often significantly.
Programs for low-income drivers
If you’ve tried all of the above and your insurance premiums are still unaffordable, then there may be help at hand. A number of programs exist that will help you to get insurance, whether backed by the government or by a private company.
If you are eligible for these, you will be able to get help with your premiums.
Three states have government-backed options at present for those on low incomes. Check your own state to see if they have introduced a similar program since the publication of this article.
California Low-Cost Automobile Insurance Program (CLCA)
The CLCA is a California program to help those with a combined household income that falls below a certain threshold. As of 2017, these levels were as follows:
annual pre-tex income threshold ($)
Additionally, you must fulfill the following criteria:
- Good driving record (including no at-fault accidents in the past three years)
- You must be 19 years old or above
- You must have a driver’s license
- You must have a car with a value less than $25,000
- You must be a resident of California
If you are below the income threshold and you match all of the stipulations above, then you are eligible for a reduced liability for bodily injury and property damage. This reduced liability will greatly reduce your overall premium with a private insurer.
New Jersey Special Automobile Insurance Policy (SAIP)
New Jersey’s SAIP covers the medical segment of your car insurance after an accident. If you are injured in an accident and require emergency medical treatment, you are covered for up to $250,000. In the event of your death, $10,000 may be payable to your next of kin. The annual cost of SAIP is $365 per annum, and is contingent upon being a recipient of Medicaid.
SAIP is medical only, so won’t cover you for any comprehensive or collision claims.
Hawaii Aid to Aged, Blind and Disabled (AABD)
Hawaii’s AABD program is designed for those who are elderly, have vision problems, or are handicapped in other ways. In order to qualify for AABD you will need to meet the following requirements:
- You have a disability (physical or mental) that has lasted for the previous twelve months and has prevented you from working.
- You are terminally ill and, as a result of your condition, are unable to work
- You are blind (this will cover a designated individual’s auto insurance)
- You are a caretaker for someone receiving AABD benefits
- You do not receive sufficient income from your social security to cover your car insurance
This service is designed as an extension of the Hawaiin welfare system, so you will need to contact the Hawaiian Department of Human Services for more information.
If you aren’t eligible for any of the above governmental programs, there are some non-governmental options that may be able to help. Again, it’s worth researching your options as information may have changed since the publication of this article.
Citizens United Reciprocal Exchange (CURE)
CURE is an insurance provider open to citizens of New Jersey and Pennsylvania that only takes into account your driving record (and no other factors) in order to price your premiums.
This is a private policy, and you should be sure to compare any policy quotes you get with those available from more traditional insurance companies as they may not necessarily be cheaper.
Maryland Automobile Insurance Fund
The Maryland fund is designed to help those who cannot find insurance on the open market. They are therefore deliberately built for those who have a poor credit history, a bad driving record, or those who can’t get insurance elsewhere.
In every state, there is an official agency designed to regulate insurance. If you are unable to get coverage from companies on the free market or feel that you are being discriminated against in any way, you can speak to your state government’s representative.
Not only will they be able to address any injustices, but they will also be able to provide you with impartial advice to help you get insured.
Insurance companies want to make money by offering insurance, so they have a vested interest in make plans affordable. Similarly, most states have some process designed to help you to get insured, as most individuals will need a car in order to work.
By being smart with your research, as well as your spending and driving habits, you’ll be able to find an insurance policy that is affordable, and with careful management, will get less expensive every year.
Licensed Insurance AgentCynthia Lanctot