September 19, 2011

How Auto Insurance Companies Penalize Low Income Drivers

In tough economic times, drivers look for ways to cut their costs, as many drivers don't have the income to pay for expensive insurance policies and gasoline bills. Unfortunately, a driver's financial well-being can have a marked impact on car insurance rates, and in some states, low income drivers end up paying much more for their policies than wealthy drivers. This is due to a new pricing strategy that many auto insurance companies are using. While factors like a driver's record still have a major impact on rates, some insurance providers are also using credit histories to set their prices. This practice has been criticized as unfair by some insurance industry analysts.

Auto insurance companies look at credit histories because they're a statistically valid way to determine the likelihood of a claim. Drivers who have a few bad marks on their credit records are much more likely to be involved in a claim than drivers with clean credit histories. Unfortunately, low income drivers are more likely to have a few marks on their credit histories, and some lawmakers have claimed that using a credit history as a factor in setting car insurance rates unfairly targets these low income individuals. Lawmakers argue that insurers are effectively penalizing blue collar workers. Credit histories are still used by many car insurance companies, but some states have introduced measures to restrict insurers' abilities to get credit reports on drivers.

Of course, other factors are still more important than credit histories in determining drivers' risks. The make and model of a driver's vehicle is extremely important, as is the driver's history. Bad drivers with good credit histories will still get relatively high premiums and vice-versa. Credit history is by no means the driving factor behind car insurance quotes, but it's an important factor, and drivers with a history of financial instability may find it difficult to keep low car insurance premiums.

Low income drivers can still find great car insurance rates. One of the best ways to combat high premiums caused by bad credit is to shop around before purchasing an auto insurance policy. Comparing rates will help drivers to find low-priced policies without sacrificing coverage. Drivers can also ask their insurance providers about discount programs, as a few minor discounts for things like changing a payment method or owning a home can quickly add up. A car insurance policy should also be compared to a few insurance quotes every several months to ensure that rates stay fair. By taking an active approach to car insurance, drivers can keep their rates down, regardless of their income or their credit histories.