Does Income Matter When Buying Auto Insurance?
As long as a person's able to pay premiums for car insurance coverage, there is probably an insurer that's willing to insure them regardless of what their paycheck looks like.
If the question is whether or not carriers consider income as a rating factor, the simple answer is no, but there are indirect ways a person's wages can impact auto insurance rates. Auto insurers are prohibited by law from using motorists' income when setting rates for policies, but other wage-related factors can give away how much drivers make.
Place of Residence
One factor used to calculate rates is a person's ZIP code. Typically, a person's salary will play a part in where they live, with lower-income families often residing in areas where housing is more affordable. These are often urban areas with dense populations that have more vehicles on the road and higher accident and crime rates, which leads to increased car insurance premiums.
Higher accident and crime rates make auto coverage more expensive simply because it increases the risk of an insurer taking on a loss. Property damage and bodily injury liability coverage costs more in these areas because with a more dense population comes a greater chance of colliding with another vehicle or striking a pedestrian or a bicyclist. Increased crash rates also lead to more expensive collision coverage.
Places with higher crime rates will also drive up the cost of comprehensive coverages because of the greater likelihood that a loss will be caused by such items as theft, vandalism, and fire.
Financial history is another area that could lead to a motorist paying more for a policy. All but three states allow insurers to use a driver's credit history as a rating factor. Individuals who are in the lower-income bracket often have poorer credit than those with higher incomes, and although many may not see the connection between auto insurance and credit, studies show that there is a correlation between a person's credit and the likelihood that they will file a claim.
Motorists who are insured continuously often pay less for policies than drivers who let protection lapse or be canceled. Policyholders with less income are more likely to let car coverage go than those who find it more affordable. By experiencing lapses a motorist will lose any continuous coverage and loyalty discount they were receiving, and insurers often charge more to drivers who have had a policy canceled in the past.
For motorists whose income is an issue, there are state programs that may be able to help them locate affordable car coverage. In the Golden State, in order to get cheap car insurance California residents can look to the California Low Cost Automobile Program, which provides Californians who meet certain requirements a way to get insured for under $400 a year.
Insurers may not be allowed to base rates by factoring in a person's wages, but there are many specifics that are taken into account that can affect premiums and are related to a motorist's income.