For many individuals without much income, a vehicle can make a huge difference. A new study by the Consumer Federation of America has found that many low-income families pay disproportionately high prices for vehicle insurance.
The insurance requirement
Forty-nine of the 50 states in the United States require all drivers to have vehicle insurance of some kind in order to cover liability in the case of an accident. In order to drive legally, either the person or the vehicle has to be insured against personal, injury, and property liability damage. The only state that does not have an insurance requirement is New Hampshire, which does require personal responsibility insurance.
The price of insurance
The pricing of vehicle insurance varies widely depending on a huge variety of factors. Most insurance companies are limited by law from directly considering income, but several income-like factors are considered. How long an individual has been driving, the number of accidents, age, job, number of miles driven each year, the zip code where the car is generally parked and a huge variety of other factors could be considered in insurance pricing.
A study by the Consumer Federation of America has found that individuals with factors that tend to indicate a lower income bracket tend to pay more for insurance. In many states, the minimal legally required insurance actually ends up being more expensive than more full-coverage options.
An increase in uninsured drivers
Despite a legal requirement of having insurance to drive, many individuals are choosing to risk the ticket for driving uninsured or to not drive at all, which can limit economic opportunities, especially in non-urban areas where public transportation may be severely limited. Current estimates are that for every one percentage point in unemployment, the number of uninsured drivers goes up by .75 percent — around 16 percent of drivers in 2010.
A possible solution
California is one state that has tried to create a solution for these high-cost, low-income drivers. State-sponsored insurance options have been able to halve the cost of insurance for drivers that meet certain criteria. These insurance pools rely on government intervention into the insurance industry, which has not gone over very well with current political leaders.
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