The amount you pay for car insurance could hinge on much more than just your accident record or citation history. Depending on where you live and the insurance company you choose, an insurer may use key details about your personal and financial life to help price your car insurance rate.
As a result, you could boast years of driving experience and a crystal-clean record and still get charged more than other drivers—especially if you have lower levels of education, rent your home rather than own it, or hold a blue-collar job.
- Low- and middle-income drivers pay significantly higher premiums than high-income drivers.
- Drivers with less education or blue-collar jobs pay more.
- Insurers base rates on predictive algorithms that consider marital status, job type, education, income, and homeowner status.
- The insurance industry says the algorithms it uses to assess risk aren’t discriminatory.
- Not all insurers use the same factors to come up with rates, so it pays to shop around for car insurance.
Researchers Find Gap Between Wealthy and Non-Wealthy Drivers’ Rates
More than a dozen separate studies reviewed by The Balance have found that low-income drivers, in particular, are charged disproportionately more for car insurance when details about their personal lives are used to rate their insurance risk.
Low- and Middle-Income Drivers Pay up to 92% More Than Wealthier Customers
Among the most widely cited studies is a 2016 paper published by the Consumer Federation of America (CFA) that reported that four of the country’s five largest and best-known car insurers charge low- and moderate-income drivers with clean driving histories 40% to 92% more, on average, than they charge wealthier customers.
In dollar terms, that difference translated to roughly $600 to $900 in extra annual premiums.
Blue Collar Workers Could Pay Higher Rates Than C-Level Employees
More recently, Consumer Reports’ advocacy arm reported that a hypothetical cashier shopping for car insurance in late 2020 was quoted nearly $100 more per year than an executive with an otherwise identical personal history. Similarly, a driver with a high school diploma was quoted up to $115 more per year than a driver with an advanced degree, Consumer Reports found.
In 2020, Douglas Heller, an insurance expert and leading researcher for the Consumer Federation of America, testified before Congress that even the best drivers are unable to avoid being charged higher rates for their resumes and home lives.
To illustrate his point, Heller described by email to The Balance a marketplace analysis he conducted in February that helped demonstrate why so many low-income drivers struggle to escape disproportionately high rates.
In that experiment, a hypothetical 35-year-old supermarket cashier in Baton Rouge, Louisiana with a perfect driving record was quoted $361 more than an investment banker with an identical record for the same six-month car insurance policy.
According to Heller, the only factors that were different about the applicants were their demographics: The cashier identified as female, rented her home, and only had a high school diploma. The investment banker, by contrast, identified as male, owned his home, and completed an MBA.
Drivers With Less Education Pay More, Too
Another study released in 2020 by the insurance-quote comparison site Insurify identified similar patterns—but unlike most insurance quote studies that rely on hypothetical experiments, Insurify’s findings came from real car insurance quotes offered to drivers.
Insurify’s analytics team scrutinized more than 25 million car insurance premiums that passed through the virtual insurance agency’s platform over a recent 12-month period. After combing through the data, Insurify found that drivers without a high-school diploma pay an average of $134 more per year than drivers with a master’s degree.
Drivers with a high-school diploma or an associate degree and drivers with bad credit pay higher premiums than drivers with more education and better credit.
“This is a consistent pattern,” Heller told The Balance in a phone interview. “If you have a blue-collar job, you pay more. If you have less education, you pay more. If you rent your home, you pay more than a homeowner. And if you have a low credit score, even with a lifetime perfect record of driving, you’ll pay more than someone with a higher credit score.”
Structural Inequity May Contribute to Rate Differences
According to Insurify manager of research and content Kacie Saxer-Taulbee, the differences in rates are driven, in part, by systemic inequities that cause some drivers to live in riskier neighborhoods or to be associated with drivers that insurers consider to be a higher risk.
“Even though insurance providers don’t consider race or class in setting rates, they do use factors like credit and employment, which correlate with them and end up costing low-income and minority drivers more for the same protection,” Saxer-Taulbee told The Balance in an email. “These disparities may be unintentional, but they’re structural."
The studies The Balance examined varied significantly in their methodology, timing, sample size, and companies studied. But even with those limitations, consumer advocates say that the available data helps corroborate the heart of their complaints: A driver’s odds of paying disproportionately more for car insurance than their more financially secure peers rises with every non-driving variable on the application that suggests they have fewer resources to fall back on.
Separate research by The Balance also found that all 10 of the largest U.S. car insurance companies continue to collect revealing data from prospective customers. For example, 10 out of 10 of the country’s largest insurers ask drivers who request a car insurance quote about their marital status, while nine out of 10 ask drivers if they rent or own their homes.
A minority of states, including California, Massachusetts, Hawaii, New York, and Michigan, sharply limit the criteria insurers can use to rate prospective drivers. For example, Michigan passed a law in 2019 that bars auto insurers from using a driver’s gender, marital status, occupation, education history, credit score, homeownership status, or zip code to price an individual’s insurance policy after lawmakers concluded that insurers’ pricing practices were unfairly penalizing low-income drivers.
How Your Personal and Financial Life Influences Your Car Insurance Quote
The link between income, job type, and insurance premiums originates in online quote requests. An insurer will typically ask for a range of details about the car you drive, the age you started driving, and how many car insurance claims you’ve made. Depending on the company, the insurer may also ask you to answer a variety of personal questions before they give you a quote.
For example, an insurer may ask you if you:
- Are single or married
- Are employed or unemployed
- Hold a high school or college degree
The Balance's research found some insurers go further, asking for additional details about your romantic life, living conditions, and career accomplishments.
According to a review of more than a dozen online quote applications by The Balance, insurers often present their questions as a way to get to know you. But they don’t explain how they plan to use your information. In the rare instances that an insurer does provide more context, they often present it as an opportunity to save money, but don’t say whether or not a specific answer could cost you.
What drivers may not realize, though, is that car insurance companies often tailor people’s online quotes in real-time, based in part on the biographical details that applicants share.
“Each question you answer is either pushing your rate higher or lower,” Heller said. “And those questions—even the ones that have nothing to do with driving—are critical to determining how much you pay for car insurance.”
Car insurers insist that they don’t consider a driver’s race or income when pricing insurance. “By law, in every state, insurers are prohibited from setting rates that unfairly discriminate against an individual,” said Mark Friedlander, director of corporate communications at the industry-backed Insurance Information Institute (III).
But Heller said that the types of questions insurers ask—and the data they choose to use or not use to rate new customers—are telling.
Algorithms Use Your Personal Information to Estimate Your Risk
Insurers ask for drivers’ personal details because it helps them predict how likely a driver is to get into a car accident and file a claim, Friedlander said.
When you request a car insurance quote, for example, an insurer’s computer system will feed your information into a custom algorithm designed to predict your insurance risk, Insurify’s Saxer-Taulbee said. Since they don’t know how you operate behind the wheel, they use this set of information to make a best guess, she said.
And if the algorithm predicts you’ll be more expensive to insure, your estimated premium is likely to be higher. The more expensive you’re predicted to be, the higher the premium.
But insurers’ information about drivers is relatively limited. So, insurers’ algorithms also rely on insights gleaned from drivers with similar profiles.
For example, married drivers file fewer claims, on average, than singles, Saxer-Taulbee said, so insurance companies are more likely to give a lower quote to a married driver. Similarly, insurers consider the claims they have previously had to pay drivers with similar backgrounds and use those comparisons to help forecast how likely you are to file a claim.
Each insurance carrier uses its own set of criteria, and if an insurer is including a specific variable in its analysis, it’s only because that insurer has proprietary research showing that the data is predictive, III’s Friedlander said.
Not All of Insurers’ Predictions Are Easy for Drivers to Grasp
Some of the predictions that insurers make using other customers’ claims history are intuitive. Drivers who drive fewer miles per year tend to pay lower rates, Saxon-Tauber said. Similarly, a driver who lives near heavier traffic or dangerous intersections is statistically more likely to get into an accident and may have higher premiums.
But how other risk factors are rated isn’t as straightforward. A 2003 study from Quality Planning Corporation, for example, found that doctors, lawyers, and architects are more likely to be involved in accidents than 36 other occupations analyzed in the study. Yet Heller pointed out that these drivers tend to be charged significantly less for car insurance than lower-income drivers.
And findings from a multitude of studies reviewed by The Balance suggest that subtle differences in drivers’ occupations and lifestyle hazards don’t fully account for why some drivers are quoted disproportionately high rates. Even blue-collar workers with similar hours and working environments as their white-collar co-workers are quoted higher rates.
Other studies have found that lower-income drivers are at a disadvantage even when compared to higher-income drivers with far worse driving records.
A Consumer Reports study conducted in 2015 found that a group of eight Florida drivers with a clean record and poor credit paid an average of $1,552 more per year than drivers with the same record, but with excellent credit and a DWI conviction.
Insurers Say That More Data Leads to Lower Premiums
Insurers’ longtime use of drivers’ personal data helps keep insurance costs affordable, Friedlander said. If insurers didn’t use a wide variety of data to rate drivers’ risks, then everybody’s rates would go up. “You would have lower risk drivers subsidizing higher-risk drivers,” he said.
Erin Collins, vice president of state affairs for the National Association of Mutual Insurance Companies, made a similar argument before Congress in 2020, saying that insurers relied on drivers’ personal data to make more accurate predictions. Without it, they risked going out of business.
To stay financially solvent, for example, insurers need to be able to predict how many claims they are likely to pay. Collecting multiple data points helps them hedge their bets and estimate how much they can afford to charge.
“Making predictions is essential. Insurance differs from most other products because the actual cost of providing insurance is unknown at the time the product is offered and the customary laws of supply and demand do not apply,” Collins testified. “To most accurately make these predictions, various factors are used to analyze a risk. Looking back at historic losses helps to forecast future losses, but prior claims alone do not provide enough information to serve as an adequate predictor.”
So, insurers feel they have little choice but to turn to other data sources to supplement a driver’s claims history.
“This is done through actuarial science and consumers benefit from having as many factors as possible considered,” she said. “In fact, by banning the use of risk factors that are actuarially justified ...you are requiring that insurers charge rates de-linked to risk. A lower risk individual will have to pay a higher rate just as a higher risk individual will get a lower rate.”
Friedlander, of the Insurance Information Institute, added that insurers’ pricing methods are based on years of insurance research that has established strong correlations between a driver’s background and their likelihood of getting into an accident and requesting funding for the repairs.
Are Low-Income Drivers Targeted for Higher Rates?
While it may seem like insurance companies are targeting low-income drivers, Friedlander said that insurers’ pricing practices are misunderstood by critics and more complicated than they seem. “There are so many factors that determine a rate. There’s not just one or two,” he said. “The system is set up to be as non-discriminatory as possible.”
For example, insurers don’t just separate low-income drivers from high-income drivers and give those with fewer resources higher rates, he said—that would be unlawful. Instead, Friedlander said that “more than a dozen different factors” influence your premium.
The Bottom Line: Shop Around
If you’re a low-income driver, the data indicates there’s a good chance you’ll pay more for your car insurance than drivers with more yearly income. Though frustrating, you can increase your chances of getting a reasonable rate by shopping around with different insurers and adjusting your coverage amounts and deductible.
“You’re going to get different price points with different insurers and every insurer is going to have its own underwriting criteria,” said Friedlander. By shopping around and looking at insurers’ best offers, “you’ll be able to match those up and see what works best for you.”