Eric Stauffer

Licensed Insurance Agent

Eric Stauffer is an insurance agent and banker-turned-consumer advocate. His priority is educating individuals and families about the different types of insurance coverage. He is passionate about helping consumers find the best coverage for their budgets and personal needs. Eric is the CEO of C Street Media, a full-service marketing firm and the co-founder of ProperCents.com, a financial educat...

Licensed Insurance Agent

Adam H. Rosenblum

Principal Attorney

Adam Rosenblum is a founding attorney with over 20 years of experience. His firm, Rosenblum Law, has offices throughout New York and New Jersey. Mr. Rosenblum’s primary focus is on personal injury, criminal defense, and traffic violations. He is admitted to practice in all state and federal courts in New York and New Jersey and is a graduate of Albany Law School. Adam’s extensive experience...

Principal Attorney

UPDATED: Dec 12, 2023

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UPDATED: Dec 12, 2023Fact Checked

Auto insurance is one of the unavoidable expenses of adulthood. While you can cut your cable bill, cancel magazine subscriptions and choose to buy in cash to avoid credit cards, you cannot avoid car insurance unless you choose not to own a vehicle. Because most people rely on vehicles to get them to and from work, school and other activities, car insurance is a necessary bill and it can get quite costly.

Although everyone is required to buy car insurance, some people pay substantially more for it than others. People with safe driving records and lots of experience will usually pay much less for coverage than those who are young, inexperienced or have a history of accidents. Age, experience, driving history and the type of vehicle being insured are not the only factors that influence auto insurance prices, however, and some of these other factors are outside of a driver’s control.

One fact that’s caused a controversy recently is that auto insurance costs more for poor people than for the rich for the same policy. Although insurance companies cannot technically discriminate against drivers due to race or income, some of the criteria used when assessing risk cause low-income drivers to pay substantially higher prices for coverage.

Credit Score as a Determination of Risk

Car insurance companies are relying more heavily on credit scores than ever before. A person with good credit is more likely to pay their insurance premiums on time, making them more reliable customers. More importantly, people with good credit also tend to have more expendable income, meaning they are less likely to file claims for small accidents.

Insurance companies hate handling small claims. Although the pay-out is only a few thousand dollars, the insurance company must spend the same number of staffing hours for adjusters, claims personnel and customer service representatives. Minor accidents are also much more common than major collisions. A person is statistically much more likely to be in multiple minor accidents in their lifetime than even a single major collision; this means that over the lifetime of the policy, an insurance company may need to cover multiple claims.

People with expendable income do not need to file claims for minor repairs. If repairs are fairly inexpensive, they will opt to pay for the repairs out of pocket to avoid the hassle of a claim. Poor people do not have this same luxury; most low-income households live from paycheck to paycheck and have little money left over for emergencies. This means that they will have a challenge covering just the deductible, not to mention repairs over that amount.

Not all low-income drivers have poor credit and not all people with poor credit live paycheck to paycheck, but there is a definite correlation between these three factors. Because the risk of multiple claims being filed over the life of a policy is greater, insurance companies will increase the rates, effectively penalizing poor people.

Other Risk Factors of Low-Income Drivers

In addition to possible poor credit, low-income drivers have other risk factors that will result in high insurance premiums. Because poverty and crime often go hand-in-hand, most poor people tend to live in neighborhoods with high crime rates. This means that a vehicle has a higher chance of being stolen or vandalized in a low-income neighborhood, so insurance companies must charge more for insurance to compensate for this risk.

Additionally, many poor people choose not to buy any car insurance at all. This means that poor neighborhoods will have a higher concentration of uninsured motorists than rich neighborhoods. The presence of uninsured drivers will lead to an increase in the overall cost of insurance because accidents with uninsured motorists cause insurance companies to lose money that cannot be recovered.

Furthermore, low-income drivers may be operating older used vehicles that are not equipped with all of the safety features or anti-theft devices that new cars come with. Insurance companies offer discounts based on these features, and people without access to these discounts will pay more for insurance by default.

Although car insurance companies cannot officially charge people more money just for having a low income, they are able to increase rates due to factors related to a driver’s wealth. Some states are working to alleviate this problem by providing state-funded car insurance assistance programs; other states have made it more difficult for car insurance companies to get a driver’s credit score.

Despite these changes, low-income drivers may continue to feel the high cost of car insurance for a long time. Until a long-term solution to this problem is made, it’s a good idea to focus on your own safe driving practices as much as possible. By driving safely and avoiding accidents and citations, you can qualify for more discounts and hopefully cut the cost of your coverage. You can further reduce the price of your insurance by comparison shopping for the best deal, taking advantage of any discounts you might qualify for and working on rebuilding your credit score.

Case Studies on Car Insurance Disparities for Low-Income Individuals

Case Study 1: The Credit Score Factor

In this case study, we explore how credit scores can influence car insurance costs for low-income drivers. Insurance companies often rely on credit scores to assess risk and determine premiums. We examine the correlation between low income, poor credit, and higher insurance rates, shedding light on the challenges faced by low-income individuals.

Case Study 2: The Neighborhood Effect

This case study focuses on how the neighborhood in which a driver resides can impact car insurance premiums. Low-income neighborhoods often have higher crime rates, increasing the risk of theft or vandalism. Insurance companies charge higher premiums to compensate for this risk. We delve into the connection between poverty, crime, and insurance costs for low-income drivers.

Case Study 3: Uninsured Motorists and the Cost Burden

In this case study, we analyze the impact of uninsured drivers on the cost of car insurance for low-income individuals. Due to financial constraints, some low-income drivers choose not to purchase any car insurance at all. This leads to a higher concentration of uninsured motorists in low-income neighborhoods, resulting in increased insurance costs for all policyholders.

Case Study 4: The Safety Feature Discount

In this case study, we explore the effect of lacking safety features and anti-theft devices on insurance premiums for low-income drivers. Many low-income individuals may operate older used vehicles that do not come equipped with these features. Insurance companies offer discounts based on these safety measures, resulting in higher premiums for those without access to such discounts.

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Frequently Asked Questions

Do Poor People Pay More for Insurance?

Yes, poor people often pay more for insurance. There are several reasons for this:

  • Limited access to employer-sponsored plans: Many low-income individuals do not have access to employer-sponsored health insurance, which is often cheaper than individual plans.
  • Lack of bargaining power: Insurance companies typically negotiate lower rates with healthcare providers, but those with limited resources have less bargaining power to negotiate better rates.
  • Higher health risks: Low-income individuals are more likely to have chronic health conditions and engage in behaviors that increase their risk of illness or injury, which can result in higher insurance premiums.
  • Limited options: Poor people often have limited options when it comes to insurance providers, which can lead to fewer choices and higher prices.
  • Inadequate coverage: Those with lower incomes may be more likely to purchase cheaper, lower-coverage plans that require higher out-of-pocket expenses, resulting in more financial strain.

Overall, insurance costs can be a significant burden on low-income individuals and families, making it difficult to access the care they need.

What is car insurance, and why is it necessary?

Car insurance is a policy that protects drivers and other road users financially in the event of an accident. It is necessary because most people rely on vehicles to get them to and from work, school and other activities.

Who pays more for car insurance?

People with safe driving records and lots of experience will usually pay much less for coverage than those who are young, inexperienced or have a history of accidents. Other factors that can influence auto insurance prices include age, experience, driving history and the type of vehicle being insured.

Do poor people pay more for car insurance than rich people?

Yes, studies have found that car insurance costs more for poor people than for the rich for the same policy. Although insurance companies cannot technically discriminate against drivers due to race or income, some of the criteria used when assessing risk cause low-income drivers to pay substantially higher prices for coverage.

Why do poor people pay more for car insurance?

One reason is that car insurance companies are relying more heavily on credit scores than ever before. A person with good credit is more likely to pay their insurance premiums on time, making them more reliable customers. People with good credit also tend to have more expendable income, meaning they are less likely to file claims for small accidents. Insurance companies also consider factors such as zip code, education, occupation, and marital status, which can negatively affect low-income drivers.

What can be done to lower car insurance costs for low-income drivers?

Low-income drivers can consider shopping around for insurance policies and comparing quotes from different providers. Some companies offer discounts for safe driving, multiple cars, and bundling home and auto insurance policies. Drivers can also improve their credit score by paying bills on time, keeping their credit utilization ratio low, and disputing errors on their credit reports.

Enter your ZIP code below to view companies that have cheap auto insurance rates.

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Eric Stauffer

Licensed Insurance Agent

Eric Stauffer is an insurance agent and banker-turned-consumer advocate. His priority is educating individuals and families about the different types of insurance coverage. He is passionate about helping consumers find the best coverage for their budgets and personal needs. Eric is the CEO of C Street Media, a full-service marketing firm and the co-founder of ProperCents.com, a financial educat...

Licensed Insurance Agent

Adam H. Rosenblum

Principal Attorney

Adam Rosenblum is a founding attorney with over 20 years of experience. His firm, Rosenblum Law, has offices throughout New York and New Jersey. Mr. Rosenblum’s primary focus is on personal injury, criminal defense, and traffic violations. He is admitted to practice in all state and federal courts in New York and New Jersey and is a graduate of Albany Law School. Adam’s extensive experience...

Principal Attorney

Editorial Guidelines: We are a free online resource for anyone interested in learning more about car insurance. Our goal is to be an objective, third-party resource for everything car insurance-related. We update our site regularly, and all content is reviewed by car insurance experts.