My Finances Today — The way you pay for your vehicle, especially how much financing you use to buy it, may well add hundreds of dollars in car insurance costs every year.
Car insurance is higher for low- and moderate-income buyers because of the terms of their loan deal with lenders, says the Washington-based Consumer Federation of America. Lenders usually insist that financing buyers get comprehensive and collision insurance on top of the basic liability coverage required of vehicle owners in most states.
That meant auto insurance premiums were “usually more than $1,500” in the 15 states studied by the CFA. That’s high; according to Quadrant Information Services, the national average for U.S. auto insurance was $907.38 last year.
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That’s certainly closer to what Americans expect to pay. The CFA says half the people it interviewed believed $500 was a “fair annual cost” for auto insurance, though 79% would go as high as $750 and call it fair. (The CFA based those numbers on a 30-year-old women with a decent income and a clean, 10-year driving record.)
Paying more is a burden for consumers who have to finance their vehicles, the CFA says, as they’re already struggling to make ends meet. “High auto insurance premiums represent a huge barrier to car ownership and economic opportunity for millions of lower-income Americans,” says Stephen Brobeck, CFA’s executive director.
The organization points to California as a good blueprint for states tamping down auto insurance bills for low-income Americans.
Through its Low Cost Auto Insurance Program, the state manages to keep auto insurance costs down to between $226 and $338 annually for liability insurance — well below the national average for mandatory auto insurance. (Drivers have to meet certain income requirements, including an annual income of under $29,170, to qualify for the program.)
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“State governments which require drivers to purchase auto insurance have a special responsibility to ensure that this insurance is affordable in an auto-dependent society,” adds J. Robert Hunter, CFA’s director of insurance. “These governments should create low-income programs that pay for themselves, such as California’s, and also end well-documented price discrimination against lower-income drivers.”
States that don’t take action to help lower-income drivers risk having more uninsured drivers.
“As well as denying economic opportunity, these high premiums pressure many lower-income drivers to break the law by driving without insurance,” Hunter says. “We’ve estimated that one-quarter to one-third of these drivers have let their policies lapse or never purchased them in the first place, because they confront the Hobson’s choice of paying for insurance or more basic necessities like food, rent or electricity.”
— By Brian O’Connell for MainStreet
