Unexpected Reasons Why You Pay More for Car Insurance
In high school, car insurance is cheaper if you get good grades. When you turn 25, the award will change again. Car insurance companies set rates based on how responsible they think you are and how likely you are to have an accident. Fair enough, but some of the criteria they use are a little unexpected.
You are not married
If you are not married, you are likely paying a little more for car insurance.
According to the Federation of Consumers of America (CFA), major insurance companies almost always charge more from clients who are single , separated, or divorced. Worse, widowed drivers are often charged more as well.
CFA conducted a study in 10 cities, receiving rates only for minimum liability insurance. They assumed the driver was a 30-year-old woman with no incidents or irregularities. Here’s what they found:
All driver rates in the city of Sovkhoz were the same, regardless of whether the driver was single, living separately, divorced, widowed, family partner or married … and divorced drivers were at the same price, and this annual premium was almost always higher than she charged married people. Prices for GEICO premium services, while always lower for married drivers, have varied in an unpredictable manner: single, separated and divorced drivers often charge different prices.
According to the CFA, carriers recognize and defend this practice, stating that married people tend to drive more responsibly. These companies often refer to the study of the National Institute of Health in 2004, which showed that single people have a higher rate of injury while driving than married. CFA says the study doesn’t make much sense:
However, this study, carried out by several scientists, was based on data collected in New Zealand around 1990 that resulted in a total of 138 injuries, a large proportion of which were motorcycle-related. And the difference in injury rate was only about one percentage point.
Wrong or not, this is a fairly common practice.
You rent your house
Unlike homeowners, tenants do not need to pay property taxes, HOA fees, or maintenance. However, one thing that they will pay more than homeowners for is car insurance.
CFA investigated this factor as well. According to the latest figures, renters pay about 6 percent more for car insurance per year than homeowners. They looked at minimum liability coverage rates in 10 cities with the largest carriers: State Farm, Geico, Allstate, Progressive, Farmers, Liberty Mutual, and Nationwide, and found that nearly all of these carriers charged significantly more to tenants than homeowners.
Check the numbers yourself. Here’s how much more renters are paying for auto insurance in 10 different cities .
You can see how much it varies from city to city as well as from company:
Each carrier uses its own calculation. Geico may charge more if you’re single, but they don’t seem to drive up prices for renters. Liberty Mutual, by contrast, charges tenants a little more.
You are a regular customer
Loyalty doesn’t pay off, at least when it comes to insurance rates. Auto insurers use a practice called price optimization to charge their repeat customers more than customers who are likely to shop around.
According to NPR , insurers use software to track your spending habits. They collect data about what you buy at the grocery store, how often you change cable TV providers, and other shopping behaviors. They then set your bid based on that data. CFA spokesman Bob Hunter told NPR :
A sophisticated algorithm processes this data and produces an index showing how sensitive the customer is to price increases. Only the insurance company knows the index. Customers may see a loyalty discount on their premiums, but Hunter says this may not be what it seems. “They’ll give you a loyalty discount,” says Hunter. “But they’ll give you a 10 percent discount after they raise your rate by 25 percent.”
In short, if a company thinks you are loyal, they risk increasing your premiums because you are unlikely to leave. Worse, they’ll give you a fake discount for your loyalty.
There are consumer advocacy groups calling for change, but the good news is that such price increases can indeed be avoided. You just need to take a closer look at insurance . Get a quote from several competitors, or simply call your insurance company and ask if they can offer you a better price.
You are parking in an area with a high crime rate
Sometimes insurance companies ask where you parked your car; sometimes they just use where you live as a metric. In any case, the place where you live and park your car also determines your rate. Allstate explains it this way :
Urban areas tend to have higher rates of accidents, theft and vandalism than rural areas, with the result that premiums are likely to be higher.
Obviously, dealing with this is not as easy as “moving to a better area.” For most people, this is not entirely realistic. However, let’s say that you currently adhere to your parent’s policies, but plan to move soon. If you are moving to an area with a higher rate of theft, you can save some money by staying insured under their policy. Here’s what the Law Dictionary has to say about the logistics of this tactic:
If your car is currently insured under your parents ‘policy and you plan to move out of your childhood home in the near future, you can stay on your parents’ policy. Most insurance companies encourage young people moving into separate homes to take out auto insurance policies. However, the definition of “separate residence” may vary depending on the insurance company.
If you are traveling across a state or country to attend college and plan to live in an on-campus dorm, you will be treated as if you were continuing to live at home. It is likely that you will be able to stay on your parents’ insurance even if you move to an off-campus apartment near the university.
This is not a scenario that applies to everyone, but if you can change it, you can save some money with this workaround.
You didn’t go to college
Yes, your education also affects your auto insurance rate. In particular, if you were not in college, some carriers may charge you more.
A 2007 report (PDF) by Florida Insurance Commissioner Kevin McCarthy found that “Some tariff plans offer higher-grade drivers to consumers with more professional occupations (doctors, lawyers, architects) and college degrees.”
This report was for Florida betting only, but similar data (PDF) from CFA showed much the same. They studied the performance of 10 different carriers across the country, analyzing not only formal education, but also the type of work. Here are some highlights of the results:
GEICO often charges a factory worker with a high school education a much higher annual fee than a plant manager with a college degree – 45% more in Seattle ($ 870 vs. $ 599), 40% more in Hartford ($ 1299 vs. $ 926) , 33% more in Oakland ($ 922 vs. 693), 23% more in Louisville ($ 2,200 vs. $ 1791), 21% more in Chicago ($ 1,013 vs. $ 840) and 20% more in Baltimore (1971 vs. 1647 dollars).
Progressive also often charges a factory worker with a high school education higher annual fees than a college-educated plant manager – 33% more in Baltimore ($ 1,818 versus $ 1,362), 14% more in Houston ($ 1,406 versus $ 1,236). , 9%. more in Louisville ($ 2,390 vs. $ 2,185), 9% more in Denver ($ 995 vs. 911) and 8% more in Oakland ($ 736 vs. $ 684).
Liberty Mutual charges a high school graduate higher annual fees than a college graduate – 13% more in Baltimore ($ 2,116 vs. $ 1,877), 13% more in Houston ($ 1,373 vs. $ 1,216), 12% more in Phoenix ($ 1,592 vs $ 1,418). and 10% more in Hartford ($ 1,913 vs. $ 1,735). In five other cities being studied – Atlanta, Louisville, Chicago, Denver and Seattle – Liberty lists rates for college graduates but not high school graduates.
NerdWallet recently conducted its own analysis in Oregon and found the same thing: no advanced degree usually meant drivers were paying about 20 percent more. Why a higher premium? There is acorrelation between educational attainment and car accidents , but no causal relationship has been found. NerdWallet explains why there is reason to be skeptical about these statistics:
Insurers typically base rates on factors that have been shown to be correlated with risk and the size of claims. Education is one such factor, albeit a controversial one. A 2008 report by the New Jersey Department of Banking and Insurance found that Geico’s payouts for premium claims paid by people with secondary education or less were 10% higher than for people with low levels of education. Associate degree, 26% more people with a bachelor’s degree and 38% more than those with a master’s degree. But Florida-based McCarthy reported in 2007 that people with higher incomes appear to be more likely to pay out of pocket for minor repairs rather than sue, artificially lowering the loss rate for this group.
DMV.org offers one solution to solve this problem . If you and your spouse are applying for a single policy together, list a college degree as the primary policy holder. You can save some money.
Here are some unexpected lifestyle factors that affect your auto insurance rates. It may not be fair, but unfortunately it is – for now. Fortunately, consumer groups such as the CFA are investigating this situation and working to address it. In the meantime, are we suggesting you get married, buy a house, or go to college just to get a discount on auto insurance? Of course not; that would be silly. However, you want to know how the rules work so that you can be prepared for them and, if possible, work around them.
Illustration by Sam Woolley