Low-Income Homeowners Pay More for Insurance in Two-Thirds of U.S. States’ Largest Cities

An examination of the cost of home insurance in nearly every state's largest city reveals that low-income residents pay $117 more per year on average than wealthier residents in the same cities. This is true in the largest cities in 34 states, or two-thirds of the states in the United States.

The surcharge levied on low-income homeowners averages 1% of the median income in the lowest-earning neighborhoods of the largest cities. However, depending on the city and state, this figure can rise to 11% of the median income.

At the same time, even when residents in low-income neighborhoods do not pay more for home insurance than those in high-income neighborhoods, they do not save much — less than $100 per year in all but two cases.

Residents in the lowest-earning neighborhoods pay higher home insurance rates in 34 states’ largest cities

On average, residents of a city's poorest ZIP code pay $117 more per year for homeowners insurance than residents of the city's wealthiest ZIP code. According to data, residents in low-income neighborhoods pay more for home insurance in the largest cities in 34 states.

Low-income residents are more likely to pay lower rates when compared to the average cost of coverage than they are to pay lower rates when compared to high-income residents. In 14 cities, low-income residents pay rates that are lower than the citywide average cost of home insurance. In nine cities, the lowest-earning residents pay less than the wealthiest.

Low-income residents in 15 states' largest cities pay annual home insurance rates that are at least $100 higher than those of wealthier policyholders. The greatest disparity exists in Michigan, where residents of Detroit's Ravendale neighborhood pay $1,919 more per year for home insurance than residents of the city's most affluent neighborhood — around Grosse Pointe Farms and south of the Ford House. Low-income residents in Columbus, Ohio, New Orleans, and Phoenix may also face significant increases in home insurance rates.

There is no cost difference between the highest- and lowest-earning neighborhoods in three cities: Honolulu, Charlotte, N.C., and Washington, D.C. In contrast, there are nine cities where lower-income residents pay less than their higher-income counterparts. In Billings, Montana, and Little Rock, Arkansas, low-income residents pay at least $100 less than wealthier residents. Low-income residents pay an average of $74 less than wealthier residents in the same city where they can get more affordable home insurance rates.

The insurance cost gap alone takes up as much as 11% of the lowest-earning residents' median income, though it varies depending on the city and state

Lower-income residents face greater financial consequences when their home insurance rates are higher than those charged to residents of wealthier neighborhoods. The magnitude of those consequences, however, varies depending on the income level of the affected residents.

Residents in Detroit's lowest-income neighborhood, for example, pay $1,919 more per year than those in the city's most affluent section — the largest gap discovered by researchers. Because this surcharge alone amounts to 11% of the median earnings in the low-income neighborhood, the affected residents' incomes are also the most negatively impacted by the rate increase.

Detroit is a one-of-a-kind case. It is the only city in the state where the surcharge levied on low-income residents amounts to more than 3% of the local neighborhood's income. In fact, with the exception of Columbus, Ohio, Los Angeles, New Orleans, Phoenix, and Omaha, Nebraska, the surcharges amount to 1% or less of the local median income. However, this does not negate the fact that a surcharge is a burden, especially when considered as part of the overall cost of coverage. Home insurance consumes 9% of the average earner's yearly earnings, based on a median annual income of $22,091 in nearly every state's largest city.

Who's affected by rate increases? It depends on the neighborhood

An examination of the demographic breakdown of the cities in this study reveals that the racial makeup of the largest cities is nearly equal, with the lowest-earning neighborhoods experiencing higher home insurance rates than wealthier areas.

In 18 of the 34 cities where low-income neighborhoods pay more for home insurance, white residents outnumber black residents. The other 16 have a higher proportion of Black residents than white residents.

Low-income areas where Black residents make up at least 50% of the population face higher total home insurance upcharges. When compared to wealthier areas of the same city, these ZIP codes are charged a total of $3,514 more for coverage. Meanwhile, the total increased cost relative to high-income sections of the same city in low-income areas where white residents make up at least 50% of the population is $2,057 per year.

Methodology

The researchers at LowCostInsurance used the U.S. The Postal Service's three-digit ZIP code designations were used to determine the boundaries of the largest cities in each state, and the cost of coverage across all ZIP codes within those cities was calculated. By utilizing the U.S. Researchers examined the relationship between premiums and earnings using the Census Bureau's five-year estimates (2015 to 2019) for the median income of earners in these ZIP codes.

Because the cities in this study were defined by ZIP code, some cities were left out where ZIP codes stretched across areas larger than a single city. LowCostInsurance excluded cities from its study where the three-digit postal service ZIP code prefix did not indicate that all residents of that area would have addresses in that city. The following cities were left out:

• Anchorage is a city in Alaska.
• Charleston, South Carolina
• Burlington, Vermont
• Virginia Beach, Virginia
• Cheyenne, Wyoming

In some cases, the lowest-earning ZIP code based on median income was associated with a college campus. Though residents of a college campus are more likely to have lower incomes, on-campus housing is a different environment than that of a typical, low-income resident of a city that isn't associated with a college. In these cases, researchers used data from the next-lowest earning ZIP code that didn't outline a college campus. The following cities were affected:

• Birmingham, Alabama
• The city of Atlanta
• Baltimore is a city in Maryland.
• Boston is a city in Massachusetts.
• Minneapolis is located in Minnesota.
• Jackson, Mississippi
• Kansas City, Missouri
• The city of Columbus, Ohio
• Omaha, Nebraska
• Fargo, North Dakota
• Providence, Rhode Island
• Sioux Falls, South Dakota
• Nashville, Tennessee
• Salt Lake City is a city in Utah.
• Milwaukee is a city in Wisconsin.

The insurance rate data used in LowCostInsurance analysis came from Quadrant Information Services. These rates were obtained publicly from insurer filings and should only be used for comparison purposes, as your quotes may differ.