Auto Insurance for Low-Income Individuals and Families

Automobile insurance is an expensive necessity for low-income families, and it is a legal requirement in most states, which could cost them hundreds of dollars per month. Only a few states — California, Hawaii, and New Jersey — provide special car insurance for people who can't afford company insurance.

Even if you do not live in one of these states, you can reduce your monthly automobile insurance bill by shopping around for the best rate and taking advantage of all available discounts. Pay-per-mile car insurance may also be a good option if you drive infrequently.

You should not consider cancelling your policy temporarily to save money because the risks far outweigh the benefits.

State-sponsored insurance options for low-income families

Three states offer government-sponsored auto insurance to low-income residents who cannot afford insurance elsewhere:

• California
• New Jersey
• Hawaii

For drivers who meet the eligibility requirements, the California Low-Cost Automobile (CLCA) insurance program provides liability and underinsured motorist coverage. Applicants for the CLCA program must be at or below 250 percent of the federal poverty line, own a vehicle worth less than $25,000, and have a clean driving record.

New Jersey's offering, the Special Automobile Insurance Policy (SAIP), only covers emergency medical costs if you are in an accident. It does not cover liability costs or vehicle damage. Drivers covered by this "dollar-a-day" insurance policy are legally considered to be insured.

However, you should strongly consider other options before choosing this policy because it provides only the bare minimum of protection. The eligibility requirements for SAIP are straightforward: You must be a Medicaid recipient.

Hawaii has a program with more limited availability as part of its Assistance to the Aged, Blind and Disabled (AABD) services. The program provides free auto insurance to people with disabilities or who are 65 or older and earn less than 34% of the federal poverty line.

How much regular car insurance costs for low-income drivers

If you don't have access to a state-sponsored low-income driver car insurance policy, you'll have to purchase a standard policy from an insurer.

Car insurance companies do not consider your income when calculating your rates. Among the most important factors influencing how much you'll pay for car insurance are:

• Age
• Location
• Driving history
• Coverage levels

So, if two drivers had very different incomes but otherwise identical circumstances, they would pay roughly the same amount for car insurance.

The cost of car insurance varies greatly by state. The average monthly insurance prices for a minimum coverage car insurance policy in all 50 states and Washington, D.C. are shown below.

Credit scores are also considered when pricing car insurance, and poor credit scores can result in higher car insurance costs for drivers. If you have a low income and have missed debt payments, this can be an indirect way in which a low income can raise insurance costs.

If you're a low-income driver, you should follow our savings advice below.

• Can't get state-sponsored car insurance
• Is your monthly car insurance costing you more than the state average?

Because of your driving history, location, or age, you may not be able to get cheaper-than-average car insurance in some cases, but if you're looking for savings, there are still plenty of steps you can take to save on your monthly bill.

Other opportunities for low-income drivers to save on Insurance

Even if your state government does not provide low-cost insurance, there are numerous ways for low-income drivers to save money on car insurance. Some of these options are obvious, while others require careful consideration.

Ways low income drivers can save on car insurance

• Shop around
• Apply for car insurance discounts
• Buy a pay-per-mile policy
• Reduce what your policy covers

Shop around

Shopping around for the best deals is the simplest and most effective way to save money.

Different car insurance companies can charge wildly different rates for the same driver, so if you haven't collected multiple quotes, you may be paying too much.

It may also be worthwhile to return on a regular basis to see if competing insurers will offer you better rates, even if you believe you got the best deal when you purchased your insurance. Companies constantly change how they calculate their rates, so you may be eligible for new savings that were not previously available to you.

Common car insurance discounts

Most car insurance companies also provide additional discounts to encourage driver safety and responsibility. Each insurer has its own set of discounts, but many are similar. Inquire with your insurance company about the discounts it provides.

One of the most common, and often most significant, discounts is simply for being a good driver. Insurers will frequently give you a discount if you have gone several years without being involved in an at-fault accident or receiving a traffic ticket.

Car insurers that allow you to use telematics, which tracks your driving habits via a smartphone app or a device that plugs into your car, provide the best discounts for safe drivers.

Another frequently available discount allows you to save money when you buy additional policies from the same insurance company, such as home or life insurance.

Other common discounts to inquire about with your insurer include:

• Senior driver
• Professional group or affiliation
• Good student
• Reduced mileage
• Advance payment

Consider buying pay-per-mile car insurance

Whereas standard car insurance policies base your rates on your age, driving history, vehicle, and a variety of other factors, pay-per-mile car insurance bases its rates primarily on the number of miles you drive. Some companies, such as Metromile, specialize in this type of policy, and some major insurance companies offer mileage-based insurance.

Pay-per-mile auto insurance is not available in every state. Metromile, for example, is only available in eight states, whereas Nationwide's SmartMiles, a pay-per-mile program, is currently available in 22 states.

Own a car that's inexpensive to insure

In general, the cheapest cars to insure are older, smaller, and have more safety features. A 10-year-old station wagon, for example, will typically have lower rates than a brand-new SUV. So, if you're in the market for a new car, look for one that has as many of these features as possible.

Reduce the number of cars you own

Auto insurance rates are partly determined on a per-vehicle basis, so if you own multiple vehicles, you'll pay more per month. If you can live with fewer cars, selling one of them can help you save money on your insurance. You'll also save money on other expenses associated with car ownership, such as fuel and maintenance.

Reduce your coverage

You can lower your monthly rates by lowering the amount of optional coverage you have or increasing your policy's deductibles. One popular option for owners of older vehicles is to adhere to the 10% rule.

Consider removing collision and comprehensive coverage on your car if the annual cost of those coverages exceeds 10% of the payout you would receive if your car is totaled.

For example, if your car is worth $2,000 and you have a $500 deductible, your insurance company will only pay $1,500 if it is totaled. In this case, you may want to cancel comprehensive and collision coverage if the cost of this portion of your insurance exceeds $150 per year.

However, you shouldn't lower your coverage past what you can afford to pay out of pocket. For example, if you only have $500 to fix your car, raising your deductible to $1000 is a bad idea because you won't be able to pay the repair bill and get back on the road.

Avoid letting your insurance lapse

If you're struggling to make ends meet, it may be tempting to let your insurance lapse or cancel coverage temporarily. This is a terrible idea.

For starters, there are severe penalties for driving without insurance. If you are caught, your licence will most likely be suspended and you will have to pay hundreds of dollars in fines. And insurance rates for previously uninsured drivers are high — if you can get coverage at all.

Furthermore, if you are involved in an accident, you will be held directly liable for any damage you cause. Even if the other driver was at fault, many states prohibit you from collecting from the other driver's liability coverage if you do not have your own car insurance.

It's also not a good idea to cancel your insurance and keep the car in storage for an extended period of time. While it is not illegal and will save you money in the short term, it is a major red flag for insurers.

When you reactivate your policy, your rates are likely to rise for several months. Instead, consider lowering the coverage level on vehicles you won't be driving — just remember to reactivate your policy before you get behind the wheel.