Do Low-Income Households Pay More For Auto Insurance?

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  • Auto insurance policies can be costly over the course of several months or more, as many consumers have found out the hard way over the last few years. However, this problem might be increasingly difficult to bear for low-income Americans in particular, as it seems to be far more difficult for them to obtain low-cost coverage even if they have a long history of safe driving. For this reason, it might be wise for insurance agents to work with these clients specifically to try to find them all the benefits for which they may be able to qualify.

    Approximately 2,300 urban and suburban ZIP codes do not have auto insurance policies from some of the nation’s top providers for less than $500 annually available to them even if they have clean driving records, and more than 1 in 3 of those areas  is among the lowest-income ZIP codes in the country, according to a new study from the Consumer Federation of America. That indicates just how difficult it might be for consumers with minimal take-home pay to afford such coverage comfortably.

    How pervasive is the problem?
    In fact, in nearly half of the 50 urban regions examined, at least one of the lowest-income ZIP codes in the nation did not have a policy costing $500 or less available to it, the report said. And in nearly 1 in 5, residents of none of the ZIP codes could obtain a plan at that price point.

    “Our research raises important questions as to whether state-mandated auto insurance is priced fairly and is affordable for many lower-income Americans,” said Tom Feltner, CFA’s director of financial services and the principal author of the report. “Drivers need a car to get to work or school. High insurance premiums act to deny these Americans economic opportunity and also help explain why so many lower income Americans drive without insurance.”

    Insurance agents may therefore have to do more to explain the risks that those in low-income areas face as a general rule, which would help to explain why their costs are so much higher. However, that often won’t change the fact that many can’t bear the costs often associated with those plans, and therefore it may further be important to provide not only strong customer service, but also occasional discounts that will reduce their ongoing costs and hopefully make such coverage more affordable going forward.