Auto Insurance for Low-Income Individuals and Families

Auto Insurance for Low-Income Individuals and Families

If you're a low-income driver who can't access state-subsidized insurance policies, there are many ways you can shop around for cheaper policies.

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Automobile insurance is an expensive necessity for low-income families, and car insurance is a legal requirement in most states, potentially costing them hundreds of dollars per month. Only a few states — California, Hawaii, and New Jersey — offer special car insurance for individuals who can't afford insurance from companies.

Even if you're not a resident of these states, you can minimize your monthly automobile insurance bill by shopping around for your best rate and maximizing the discounts you receive. And pay-per-mile car insurance could be a great solution if you're someone who drives relatively infrequently.

You should not consider temporarily canceling your policy to save money, as the risks far outweigh the benefits.

State-sponsored insurance options for low-income families

Three states provide government-sponsored automobile insurance to help low-income people who can't afford insurance elsewhere:

  • California
  • New Jersey
  • Hawaii

The California Low-Cost Automobile (CLCA) insurance program offers liability and underinsured motorist protection for drivers who meet its eligibility requirements. Applicants to the CLCA program must be within 250% of the federal poverty limit, own a car worth less than $25,000 and have a good driving record.

New Jersey's offering, the Special Automobile Insurance Policy (SAIP), only covers emergency medical costs if you are in an accident. It doesn't cover liability costs or damage to your own vehicle. Legally, drivers covered by this "dollar-a-day" insurance policy are considered to be driving with insurance.

However, you should strongly consider other options before selecting this policy, as it provides an absolutely minimal amount of protection. SAIP's eligibility requirements are straightforward: You must be enrolled in Medicaid.

Hawaii has a program with more limited availability as part of its Assistance to the Aged, Blind and Disabled (AABD) services. The service provides free auto insurance to people with disabilities or who are 65 years or older and have income below 34% of the federal poverty line.

How much regular car insurance costs for low-income drivers

If you don't have access to a state-sponsored car insurance policy for low-income drivers, you'll have to buy a standard policy from an insurer.

Car insurance companies don't use your income as a factor when calculating your rates. Among the main factors affecting how much you'll pay for car insurance are your:

  • Age
  • Location
  • Driving history
  • Coverage levels

So if two drivers had very different incomes but all other factors were identical, they would pay approximately the same amount for car insurance.

Car insurance prices vary greatly by state. Below, we show average monthly insurance prices across all 50 states and Washington, D.C. for a minimum coverage car insurance policy.

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Credit scores are also a factor in car insurance pricing, and poor credit scores can also result in higher car insurance costs for drivers. If you have a low income level and it has resulted in missed debt payments, this can represent an indirect way in which a low income could raise insurance costs.

You should follow our savings tips below if you're a low-income driver who:

  • Can't get state-sponsored car insurance
  • Is paying more per month than for car insurance than the average price for your state

In some cases, it may not be possible to get cheaper-than-average car insurance because of your driving history, location or age, but if you're looking for savings there are still plenty of steps you can take to save on your monthly bill.

Other opportunities for low-income drivers to save on Insurance

Even if you can't get inexpensive insurance from your state government, there are many ways for low-income drivers to reduce car insurance costs. Some of these options are straightforward, and others require careful consideration.

Ways low income drivers can save on car insurance

Shop around

The simplest and most effective way to save is to shop around for the cheapest rates.

Different car insurance companies can offer remarkably different prices for the same driver, so if you haven't collected multiple quotes, you may be missing out on the lowest price.

It can also be worth it to check back periodically to see if competing insurers will offer you better rates, even if you got your best deal when you purchased your insurance. Companies constantly adjust how they calculate their rates, so you may be eligible for new savings that didn't apply before.

Common car insurance discounts

Most car insurers also offer extra discounts to promote safety and responsibility behind the wheel. Each insurer offers different discounts, but many are similar. Ask your insurance company about the discounts it offers.

One of the most typical, and often most substantial, discounts is simply for being a safe driver. Insurers will often provide you with a discount for going multiple years without an at-fault accident or traffic ticket.

Car insurers that allow you to use telematics, which track your driving habits using a smartphone app or a device that plugs into your car, offer the biggest discounts for safe drivers.

Another frequently available discount provides savings for purchasing additional policies from the same insurance company, such as home or life insurance.

Other common discounts to ask your insurer about:

  • Senior driver
  • Professional group or affiliation
  • Good student
  • Reduced mileage
  • Advance payment

Consider buying pay-per-mile car insurance

Whereas standard car insurance policies calculate your rates based on age, driving history, vehicle and a variety of other factors, pay-per-mile car insurance primarily bases its rates on the amount you drive. Some companies, such as Metromile, specialize in this type of policy, and other major insurance companies offer some forms of mileage-based insurance.

Pay-per-mile car insurance might make sense if you drive less than 1,000 miles per month, though rates may vary. If you barely use your car, you should definitely consider this type of policy as your rates may drop notably.

Pay-per-mile car insurance isn't available everywhere. For example, Metromile is only available in eight states, and SmartMiles, a pay-per-mile program offered by Nationwide, is currently available in 22 states.

Own a car that's inexpensive to insure

Generally speaking, the cheapest cars to insure are older, smaller and equipped with more safety features. For example, a 10-year-old station wagon will typically have lower rates than a brand-new SUV. So if you're in the market for a new car, consider buying one that meets as many of these characteristics as possible.

Reduce the number of cars you own

Auto insurance rates are partly determined on a per-vehicle basis, so you'll pay more per month if you own multiple vehicles. If it's feasible to make do with fewer cars, selling one of them can cut your rate as well. You'll also limit the other costs associated with owning a car, like fuel and maintenance.

Reduce your coverage

You can reduce your monthly rates by decreasing the level of optional coverages you have or by increasing the deductibles on your policy. One common choice for owners of older vehicles is to follow the 10 percent rule.

Consider removing collision and comprehensive coverage on your car if the annual cost of those coverages exceeds 10% of the payout you would receive if your car is totaled.

For example, if your car is worth $2,000 and you have a $500 deductible, the most your insurance company will pay if your car is totaled is $1,500. In this scenario, you may want to cancel comprehensive and collision coverage if this part of your insurance exceeds $150 annually.

However, you shouldn't lower your coverage past what you can afford to pay out of pocket. For example, if you can only spare $500 to fix your car, it's a bad idea to raise your deductible to $1000, as you wouldn't have enough money to pay the repair bill and get back on the road.

Avoid letting your insurance lapse

If you're having trouble making ends meet, it may be tempting to let your insurance lapse or temporarily cancel coverage. This is a bad idea.

First, the penalties for driving without insurance are severe. If you're caught, you'll likely get your license suspended and pay hundreds of dollars in fines. And the insurance rates for drivers previously caught without insurance are high — if you can get coverage at all.

Plus, if you're in an accident, you'll be directly responsible for any damage you caused. Even if the other driver was at fault, many states have laws that prevent you from collecting from the other driver's liability coverage if you don't have your own car insurance.

It's also not a good idea to cancel your insurance temporarily and keep the car in storage during that time. While it isn't against the law and will save you money in the short run, it's a big red flag for insurers.

Chances are high that when you reactivate your policy, your rates will increase for months to come. Instead, consider minimizing the coverage level on vehicles you're not going to use — just don't forget to reactivate your policy before you get behind the wheel.

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