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Car insurance companies look at a wide range of factors when determining your car insurance rate. Your age, job title, ZIP code, credit score, even driving data collected by mobile app may all go into calculating your premium. Strictly speaking, your income is not one of these factors.
Income can, however, have an indirect impact on how much you pay for car insurance—and whether your premium is affordable. Here's a closer look at the relationship between income and car insurance.
How Does Income Factor Into Calculating Car Insurance Rates?
While insurers don't look at your income directly when they're setting your car insurance rate, your socioeconomic status can play a role in what you pay for car insurance. For example, insurance companies usually consider your ZIP code in their rate calculations. If you live in an urban area where theft, vandalism and traffic accidents are more likely, you may pay a higher premium.
A higher income doesn't guarantee you'll live in a low-risk ZIP code, but a lower income might increase your chances of being in a high-crime area where your rate could be higher. Insurance companies may also factor in your job title and employment status when calculating your rate.
Of course, income has a direct effect on affordability when you consider how much of your monthly take-home goes toward car insurance. The same $100 premium is more affordable to a person making $8,500 a month than someone who makes $3,500, even if income didn't play a role in setting that rate.
What Do Car Insurers Look at When Setting Rates?
The factors that go into calculating insurance rates are many. Here are a few of the basics:
Coverage and deductible amounts: More coverage naturally brings on higher rates. This includes higher coverage limits, adding collision or comprehensive coverage or specialized coverages like glass breakage and car rental, or putting additional drivers on your policy. A higher deductible can lower your rate, but beware of setting your deductible so high that you can't recover from an accident or theft.
Make, model and age of your car: Typically, the more valuable your car is, the more expensive it is to insure. The type of car may also be a factor: A sports car typically costs more to insure than a basic sedan. Furthermore, a classic car with harder-to-find parts may be more costly to insure.
Demographics: Your age, gender or marital status may all affect your insurance rate.
Driving record, accident and claims history: If your driving history includes traffic violations and accidents, you may pay a higher rate for insurance. Past insurance claims are another potential rate trigger. Insurers generally don't like to see a break in your insurance coverage, either.
Mileage and use: Since driving more miles generally means more risk for insurance companies, drivers who log 12,000 miles per year or fewer may be entitled to a low-mileage discount.
Discounts: Insurers typically offer a range of discounts for qualifying drivers. These may include discounts for having multiple policies with the company, owning a car equipped with theft deterrence systems, having good grades—the list is long. Check with your insurance company to find out what they offer.
Are Auto Insurance Rates Based on Credit Scores?
In addition to the factors above, insurance companies in many states also use credit-based insurance scores to help calculate your premium. These specialized scores use information from your Experian, TransUnion or Equifax credit report to gauge how likely you are to file an insurance claim and cost the insurance company money. A few things to know about credit-based insurance scores:
- Some states limit or ban the use of credit in setting insurance premiums. In most states, these scores can't be used as a sole factor that determines your rates.
- Though credit-based insurance scores differ from your regular credit scores, they do look at largely the same factors, including whether you've paid your bills on time and how much debt you carry.
- Like your regular credit scores, your credit-based insurance score is not based on your income and doesn't use income as a factor in calculating your score.
How to Save Money on Car Insurance
If your insurance premium feels too high, how do you lower your rate? Make sure you're taking advantage of all the discounts your insurance company provides. Consider raising your deductible or removing comprehensive coverage, unless your loan or lease agreement prohibits this. Can you pay your entire premium upfront? If so, you may save money on finance charges.
Chances are, you may find a lower rate if you shop for new insurance. In a survey of more than 90,000 consumers, Consumer Reports found that 62% of respondents who switched car insurers in the past five years found a lower rate with their new insurance company. Check with top carriers before you re-sign to keep your current insurance company honest. Or use a search engine or broker to compare rates from multiple companies at once—and see quickly whether your current rate is competitive.
Creating the Best Car Insurance Options
Though your income won't dictate your auto insurance rate, your credit score might be a factor. So, in addition to maximizing discounts and re-evaluating your coverage and driving habits, consider working on your credit score to improve your options. Start by checking your credit score and credit report for free from Experian. You can also sign up for free credit monitoring to stay on top of changes to your credit file and receive alerts that will help keep you on track.