Could Your Household Income Be Impacting Your Auto-Insurance Rates?
Although most drivers are aware that the number of traffic tickets or prior at-fault accidents on their driving record can be enough to skyrocket their premium rates, many may be surprised to learn that a much more innocuous factor—household income—can be used by many insurance companies to assign risk and set rates. Read on to learn more about how this figure can be used to calculate your insurance-premium rate as well as learn about some options if you don't feel your income adequately reflects your riskiness as an insured driver.
Why is income deemed relevant to insurability?
There is some controversy as to whether one's household income has anything to do with their risk as a driver. However, quite a few insurance companies seem to believe there is a valid connection. In fact, a recent analysis by the Consumer Federation of America found that in between 50 and 70 percent of cases, a safe driver with a modest income was quoted higher rates than a higher-income driver with a recent drunk-driving conviction or at-fault accident.
There can be a number of reasons for this, from the belief that those with incomes on the lower end of the spectrum tend to live in higher-crime neighborhoods to the idea that those with higher incomes are less likely to submit fraudulent claims or engage in activities like the "swoop and squat" to force other drivers into a collision. Because the insurance-risk calculation tends to weigh against younger people (who also tend to have lower incomes due to attending school full-time or just starting out in their careers), this correlation may also be a factor.
Is there anything you can do to prevent your income from being used to set your insurance rates?
Some states, like California, have enacted laws that specifically prevent insurance companies from using certain demographic information to compute rates, so those residing in states with strong consumer protections are unlikely to be affected by this practice.
However, because each insurance company utilizes its own proprietary formula to determine risk, it can be difficult to know which companies are using household income in this calculation as well as the weight this factor is given. If you've recently received a substantial premium increase shortly after a reduction in income (with no other potential "dings" on your driving record), it's likely your current company is one that has incorporated income into its actuarial formula. You'll want to begin shopping around to see if you can obtain a better—and less discriminatory—auto-insurance rate elsewhere.