Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. She also specializes in automa...

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Reviewed by Melanie Musson
Published Insurance Expert

UPDATED: Mar 13, 2020

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With the economy still struggling, many people are having a hard time paying their bills. While certain expenses can be cut from a household budget, not all bills are luxuries. Certain things like healthcare, food, housing costs and utilities are necessary for survival, and all people must find a way to pay for them. In order to assist families who cannot cover these necessary expenses, government assistance programs provide cheap alternatives or financial assistance.

Although you might be familiar with low-income housing, nutritional assistance programs or Medicaid, you might not realize that assistance is available for car insurance in some states. Like other necessary expenses, car insurance is required by the state; if you have a vehicle, you must insure it. For people who cannot afford regular insurance premiums, low-income car insurance companies are an ideal solution.

Why Low-Income Families Need Affordable Insurance

People with low incomes need to travel to work, school, grocery stores and other destinations. Although many people choose to use public transportation, it’s not possible to use bus systems for everything and not having a car can reduce a person’s ability to pursue new work opportunities.

Providing affordable insurance to low-income drivers is especially valuable because these drivers often have a difficult time qualifying for the cheapest insurance due to their credit history, which is often poor. Low-income drivers may also live in areas with high crime rates against property, which will also increase the overall cost of insurance as protection against theft and vandalism. In other words, people who have the lowest incomes may actually pay more for insurance.

People who cannot afford car insurance are more likely to drive uninsured. Because this is illegal, they will suffer penalties and may have their licenses suspended if they’re caught. This will make it even harder for them to qualify for car insurance in the future, and the suspended license may stop them from being able to work some jobs.

Finally, uninsured motorists actually cause insurance rates throughout the state to rise. Every time a person without car insurance causes an accident, the other driver’s insurance company loses money; in order to compensate for these lost profits, insurers must raise rates throughout the state. This creates a negative cycle where drivers have a harder time buying insurance, so more go uninsured, causing rates to increase further. Providing low-cost auto insurance will reduce this problem and ultimately benefit everyone in the community.

How it Works

The Auto Choice Reform act was suggested in 1998 as a way to provide assistance to drivers who could not afford auto insurance. Unfortunately, implementation has taken a long time and most states have yet to provide coverage. The states that do provide coverage offer very limited and affordable insurance to drivers near the poverty level.

The insurance is underwritten in part by the state government and provides limited coverage. For example, a bodily injury liability limit would be just $10,000, which is substantially lower than the average auto insurance limit and even lower than the usual state minimums. Nevertheless, this sort of bare-bones auto insurance is better than no insurance at all.

How Much Does it Cost?

The exact price may vary slightly depending on your situation, but the low-income car insurance should cost less than half the average price of insurance, maybe less depending on the area. An average price comes out to around $1 a day for very basic liability coverage, and as the program matures the prices may drop even lower for some people who need coverage.

How Do I Qualify?

State-funded car insurance is only available in California and New Jersey right now, although the program may extend to other states in the future if it is successful. In order to qualify for coverage, a driver must meet a number of requirements:

— Income of no more than 250% the poverty level
— A vehicle valued at under $20,000
— A good driving record
— Over 19 years of age
— Have a driver’s license for at least three continuous years

All of these requirements are designed to reduce the overall risk to the insurance company and ensure that the drivers actually need the financial assistance. Once you’ve applied and are accepted, a representative will call to finish the process and set up your policy. Be sure to ask exactly what coverages will be added to the policy so that you can plan accordingly.

Although state-funded auto insurance for low income families is only available in two states right now, it may spread to more areas if the program becomes popular. For people in other states, you can reduce the cost of your auto insurance by comparison shopping for the best deal and taking advantage of any discount programs that you might qualify for.