Does Your Income Affect Your Insurance Premium?

New research shows that your income has a direct correlation to how high your insurance premium is.

Your income has been found to determine how much you will pay for insurance.

Sadly, the answer is yes. How much you earn a year has been found in recent studies to directly correlate how much you will pay for insurance. While there are no underwriting factors that use income to determine your insurance premium, the factors that are used can understandably be seen as skewed towards certain income brackets.

Your Income vs. Your Insurance Premium

A study recently done by the Consumer Federation of America found that insurance companies often charge lower-income drivers more for their insurance premium than those that make more money. This study took into account more than 100 pricing studies on auto insurance to arrive at the results.

The study claims that insurance companies use rating factors such as the location a person lives or works in, credit history, age and education as ways to get around the illegal practice of charging drivers based on income level. Lower-income drivers usually have little education, live in locations that are not considered to be safe by the insurance companies and generally have bad credit histories due to the lack of money to pay bills. Because every single rating factor here ends up being rated negatively against them, the insurance deck is actually stacked against a low-income driver.

The study also found that drivers with lower incomes, pay more for just the minimum required insurance than drivers with higher incomes do for much more insurance coverage.

Insurance Companies Defense of Insurance Premiums

When this study was released at the end of January, the insurance companies that responded defended their rating practices. Stating that they do not rate base on income, and the rating methods that they do use are used to determine how high of risk a specific driver is. In other words, it was all just a coincidence that the lower-income drivers paid more.

At the same time, these insurance companies do not share how they figure or calculate how a driver with a college education and a job that pays well, is a better driver than one that only graduated from high school and works at a gas station. There is no way to determine if their rating methods are really income biased or not.

Not Insurance Premium Redlining

We have talked about the illegal practice of redlining, where insurance companies charge higher premiums to minorities in specific locations. This study is not about this type of unfair practice of concentrating on a specific geographic location, it is about income levels. These higher insurance premiums are more spread out geographically, but concentrate instead in specific income brackets.

What Can You do About Your Insurance Premium

If you feel that you are being unfairly charged for your insurance you have two options. One, you can file a complaint with the Insurance Commissioner or Department of Insurance in your state over the unfair insurance premium amount. They will look into the complaint for you, but honestly with the way the insurance companies have it set up, you probably won’t see a resolution. If enough people complain about one company though, it may force an insurance premium rating change.

Two, look for a different insurance company. This action will get you the fastest results as each insurance company has different underwriting standards and rating process. While you may not get the cheap rates that other income brackets may have, you can still do better than where you are. Besides, it is good to go insurance premium shopping every couple of years anyway, to see what other companies are charging.