Does income affect car and life insurance rates? Understanding what goes in to determining how much you payDoes income affect car and life insurance rates? Understanding what goes in to determining how much you pay
There are many factors that go into how much you end up paying for car and life insurance. Determining rates for each individual is a complicated process of algorithms and formulas that takes into account multiple factors in order to determine the likelihood that you will require a pay out. One of those factors is your income. Let’s take a look at how that could affect both types of insurance.
Auto insurance and your income
Here’s one truth…people with lower incomes often end up paying more for car insurance. Another truth…the price of insurance is not supposed to tie in to your income. In many states, it’s illegal to use income as a factor, and yet, a 2015 Consumer Reports study of more than 700 companies found that pricing of insurance does rely heavily on socioeconomic factors. A second study by the Consumer Federation of America (CFA) seemed to confirm the allegation. Often, socioeconomic factors carry more weight than your driving record. Even if a state cannot directly ask about income, there are other ways to determine what your finances might be. Your education level, occupation, marital status, where you live, whether you own or rent a home, and credit scores are all things insurance companies use to make a reasonable assumption about your income.
Some practical ways to influence how much you pay for auto insurance
There are a few things you can do to help ensure you don’t pay more than you should.
- Shop around. Rates vary significantly from company to company so get quotes from several different ones.
- Be aware of your credit score. Having a higher credit score will help keep your rates lower. It’s also better to be aware of any problems because a bad credit score can affect everything, from buying a home to your interest rate on credit cards.
- Take a driving course. Some insurance companies will offer a lower rate if you take an approved driving courses. Ask your insurer if they offer such a discount and which course they accept.
- Choose a higher deductible. This can lower your monthly rate significantly. Yes, you take the risk of having to pay more before your insurance kicks in, but the monthly savings could help offset that.
Life insurance and your income
Life insurance is meant to safeguard family members and dependents from financial hardship in the event of your death. No one likes to think about the possibility of dying, but it happens every day. Again, income does not usually directly affect the price of a life insurance policy. Other factors carry more weight when determining what you pay for premiums.
Factors that affect life insurance rates:
- Age. Not surprisingly, age is the number one factor. The older you are, the more you will pay.
- Gender. This is the second most important risk factor. On average, women still outlive men by 5 years or more, and that means they pay less.
- Smoking. Smoking is a leading cause of many serious illnesses, from heart and lung disease to cancer. So, if you are a smoker, you will pay more.
- Health. Before you buy a life insurance policy, you will need to undergo a medical exam that looks at your height and weight, blood pressure, cholesterol levels, and other key metrics. This will determine your risk factors.
- Family medical history. Health experts know that if you have a family history of stroke, cancer, heart disease or other ailments, you may be at higher risk of those illnesses yourself.
- Lifestyle. If you enjoy high-risk activities like mountain climbing or racing cars, expect to pay more. The same goes if you have a higher-risk occupation such as mining, fishing or transportation.
- Driving record. Some life insurance companies will inquire whether you have traffic violations. They can also check with the DMV to see if you’ve run afoul of the law.
To learn more about ways you can find the best auto or life insurance policy at the best price, contact Avante Insurance today for a free quote.