Drive it Down! The High Cost of Auto Insurance for Rural Families

Owning a safe, reliable, efficient and affordable car can help a low-income rural family move from surviving to thriving. Research by the Carsey Institute shows that a good car not only increases a family’s access to jobs, health care, and nutritious food, it can also reduce household expenses and improve a family’s financial outlook.

But here’s one thing most people don’t know: The single largest transportation-related expense for low-income households, besides the cost of gasoline and the car itself, is auto insurance. A Consumer Federation of America study determined that auto insurance costs an average low-income family $823 a year. That’s more than 10% of household income for low-income families!

Living Rural and Low-Income? Pay a Higher Premium!

Rural families have fewer transportation alternatives to get to work and the grocery store, so they are more dependent on owning a car, and must purchase insurance. The price of that auto insurance policy depends on two things: the type of coverage the family is buying and the insurance company’s assessment of the family as an insurance risk. In every state, insurance agencies consider a range of factors in determining risk, many of which put low-income rural families at a disadvantage.

• Occupation, education, credit history factors typically make coverage more expensive for low-income families.
• Longer-miles-driven and place of residence factors can raise premiums for rural drivers.

As a result, low-income rural families are more likely to have higher cost premiums. The facts bear this out. The Consumer Expenditure Survey shows that, on average, rural families allocate a greater percentage of their resources to cover auto insurance than urban residents.

What’s worse, auto insurance is often a bad deal for low-income drivers. In the event of an accident or theft, lower-cost cars may be more expensive to insure than to replace. That’s why many states only require liability coverage, which protects people involved in an accident with the car – other than the insured driver. Paradoxically, some insurers actually charge more for these liability-only policies than they do for full coverage, according to a recent Consumer Federation of America report. Authors Stephen Brobeck and Robert Hunter challenge the practice: “While the differences may reflect, all or in part, actual losses, it seems unconscionable that insurers or their agents would offer more expensive policies with less coverage to a specific individual.”

Helping Rural Families Stay on the Road

Car ownership is a necessity for families in rural places, and auto insurance is required of drivers in 49 states. What can you do to help make higher quality auto insurance more affordable for low-income rural families?

• Lift the Fog: Auto insurance is a complicated product – and daunting with its fine print. Families are being asked to pay for something that they never expect to use. Spending a few moments more exploring the options can increase savings and help if, heaven forbid, the policy is ever needed. You can help rural families in your program or community by explaining the different types of insurance policies, and guiding their selection of the amount of coverage they need.
• Finding Lower Premiums: If a family runs into financial trouble, there may be better ways to reduce insurance costs than cancelling auto insurance outright. For instance, some insurers offer car monitoring devices that record driving habits and can reduce premiums for safe drivers. Also, insurance companies can offer rate reductions if a car is driven less.
• Take Care with Financing: If a family is financing a car, banks and dealerships typically require a “forced place” provision to protect their investment. This provision requires that the car purchaser maintain a certain minimum insurance policy on the financed car. If the policy is canceled or falls below the minimum requirements, the lender buys their own insurance and then passes along the cost to the car owner. And of course, the forced place policies are much more expensive than standard insurance. When a family is financing a car, they should know what type of insurance they must maintain and how much it will cost.
• Look for State Programs that Help: Recognizing the large burden of auto insurance on low-income residents, some states have started offering special programs for low-income families. Contact your state insurance regulator to find out what is available in your area.

Help Along the Way: Auto Insurance Resources

It’s always best to start with good information. Here are auto insurance resources that can help you sort out the insurance facts and figures, do’s and don’ts, in your area.

• State Information and Agencies: Auto insurance products and regulations vary by state. So before working with families in your area, identify and connect with someone who knows about auto insurance in your state. The National Association of Insurance Commissioners, the standard-setting and regulatory organization of state insurance agencies, maintains a basic website on auto insurance information and a map of state regulatory bodies. From this site, you can find how to contact your state agency and start building local relationships.
• Consumer Federation of America: CFA tracks the insurance industry and conducts research, offers education and promotes policy changes in the interest of consumers. In 2012, they completed a comprehensive study of the auto insurance industry from a low-income household perspective. In 2000, they published a basic guide for consumers on how to purchase auto insurance policies.
• Consumer Reports: This nonprofit provides extensive subscription-funded reviews of products and services and has a publicly-available buying guide on auto insurance. Although access to their comparative ratings on policies requires a subscription, they offer basic decision-making information without a fee. If you plan on working with families to find more affordable policies, it may be useful to purchase a subscription.
• National Consumer Law Center: NCLC sponsors the Working Cars for Working Families project to help low-income families become car owners. In addition to a great database on car purchasing programs, you can find a 2011 webinar on their website featuring their director, John Van Alst, that describes the complicated pricing practices used in auto insurance.

Have an Auto Insurance Success, Idea or Lesson Learned?

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