Study: Find Out If Car Insurance Is “Affordable” Where You Live

Do 19 million Americans pay too much to insure their vehicles? What can they do about it?

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A new insurance affordability study from the U.S. Federal Insurance Office reported that car insurance is “unaffordable” for about 10 percent of U.S. zip codes, accounting for approximately 19 million Americans. Yet the government requires drivers to have insurance if they own a registered vehicle, making (legal) use and ownership of car impossible for many.

Many variables affect your auto insurance premiums, including what kind of vehicle you drive, your driving record, and – surprisingly to some – where you live. We’ll explore how your zip code affects your auto insurance rates and what this new study really means for consumers.

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Insurance Affordability Study Findings

In January, the Federal Insurance Office, a subsidiary of the U.S. Department of the Treasury, released its Study on the Affordability of Personal Automobile Insurance. The study looked at insurance premium costs in more than 9,000 zip codes, many with large quantities of minorities and low-income individuals. Researchers considered auto insurance “unaffordable” when it accounted for more than two percent of the households’ incomes, which was the case for nearly one in 10 zip codes examined.

Is Car Insurance Really “Unaffordable?”

Urban Areas Have Higher Rates

The study focused on a somewhat narrow subset of the population: people in zip codes with lower incomes and in more urban areas.

“Generally speaking, population density has a big impact on insurance premiums, so if you live in an area that is densely populated, you’ll see higher rates,” says Neil Richardson, licensed insurance agent and adviser at The Zebra. “It’s more risky – and costly – for insurance companies to cover you because in dense cities there are statistically higher incidences of collisions, crime, and vehicle theft.”

What the study did reveal is that insurance is “affordable” for the vast majority of the population. In the report’s findings, over 90 percent of the examined population – including very poor areas – were able to find insurance for less than two percent of their annual income. And while that should be encouraging for people looking to maintain insurance coverage, those struggling to make ends meet could be in for more trouble.

What Happens When Insurance Is Unaffordable

If it’s impossible for drivers to afford insurance, they either risk driving without coverage – putting themselves and others at potentially substantial financial risk – or have to go without a personal vehicle at all.

(See four consequences of driving without insurance.)

Not being able to afford a car can affect other areas of people’s lives, including their earning potential. Without their own vehicles to get to and from work (or even to use for work), they have to rely on public transportation, walking, biking, or carpooling – or nothing at all. These options can limit their employment opportunities, making it difficult for them to secure more lucrative employment.

“It’s a catch-22,” Neil says. “A high number of uninsured drivers causes insurance rates to go up, which can in turn cause more drivers to drop coverage.”

It’s critical for drivers to know what factors affect their rates so they can find the level of coverage at the right price and keep themselves protected financially.

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What Impacts Your Car Insurance?

While The Zebra’s own research showed that the national average annual auto insurance premium is $1,323, there’s enormous variety in what you pay, what your neighbor pays, what your teenage son pays, and so on. Some variables which affect your coverage include:

  • Credit score: Many insurance companies use your credit score to determine your rates. If you have a lower score, you may experience rates twice as high as someone with a credit score in the very good to excellent range.
  • Your driving record: Speeding tickets, at-fault collisions, a DUI, and a bevy of other violations could cause your insurance company to raise your rate – perhaps by a lot. (See The Zebra’s State of Auto Insurance Report to see how much each type of driving violation raises rates in your state.)
  • Vehicle use: If you mainly use your car for a short commute to and from work, you may have a lower rate. But if you use your car for business purposes (think: real estate agent), or if you have a tough or long commute, your rates will be higher.
  • Age of car: An older vehicle is cheaper to insure. In fact, a five-year-old vehicle is about 11 percent less expensive to insure than a current-year model.
  • Zip code: As mentioned above, if you live in a city or highly densely populated area, your rates could be quite high. Statistically, drivers in cities tend to have more accidents, receive more traffic violations and tickets, and be victims of higher rates of theft and vandalism than residents in suburban or rural areas.

What You Can Do to Find Affordable Car Insurance Coverage

Car insurance is intended to provide necessary security and coverage in case of an accident or theft and can save you from having to spend thousands out of pocket. But you also don’t want to pay more than you have to for a company that’s not the right fit or for coverage you don’t need. By comparing car insurance rates on a regular basis, you can avoid overspending on premiums.

In The New York Times’ exploration of the Federal Insurance Office’s affordability study, the reporter addressed the question of finding affordable car insurance, including a recommendation to shop around at

“Shopping around consistently – and not just when you buy a new car – is important. I recommend shopping for new coverage every six months or at least once a year, at a minimum,” says Neil. “Insurance rates vary on a daily basis. The market can change, or a new company can beat current insurers’ rates. Or your credit score may improve, or you get married or finish your degree. Shopping around is the best way to save money.”

Neil also recommends maintaining continuous coverage without any lapses and considering sharing a policy with a household member.

See Neil’s 50 tips for saving on car insurance to learn more.