What People With Low Incomes Can Do to Lower Their Car Insurance

Car insurance is required in the majority of states. However, with the average cost of full-coverage car insurance at $1,674 per year, not everyone can afford it.

Income is not considered by insurers when determining insurance premiums; you do not pay less if you earn less. Because of insurance-industry practices that critics say discriminate against people with lower incomes, you may end up paying more.

“Lower-income customers are frequently forced to pay more because of the use of zip codes and employment in insurance underwriting,” says Nestor Hugo Solari, co-founder and CEO of Sigo, an auto insurance provider aimed at immigrants and Latinx customers.

If you do not earn enough money to afford car insurance, you may be unable to obtain the coverage you require (or any at all). Depending on where you live, there are some low-income car insurance options available, but there is no federal option.

State-Sponsored Insurance Options for Low-Income Families

Some states provide insurance plans and assistance to drivers who cannot afford traditional car insurance. California, Hawaii, and New Jersey all have state-sponsored programs for their residents, with varying levels of approval.

California’s Low-Cost Auto Insurance

To qualify, you must own a vehicle worth no more than $25,000, be at least 16 years old, and earn no more than $32,200 per year for a single-person household. A two-person household raises income to a maximum of $43,550. Each driver must also have a valid driver's license. The program only provides liability car insurance and does not provide comprehensive or collision coverage.

Hawaii: The Assistance to the Aged, Blind and Disabled (AABD) program

This program assists Hawaii residents who are 65 years of age or older, disabled, or blind, and fall below 34 percent of the federal poverty line in 2006. The program provides cash benefits that can be used to purchase low-cost car insurance.

New Jersey’s Special Automobile Insurance Policy

This policy costs $365 per year and is only available to people on federal Medicaid who need hospitalization. This policy does not apply to all Medicaid programs. The policy only covers emergency treatment up to $250,000 in the immediate aftermath of an accident. It also includes a death benefit of $10,000. There is no coverage for liability, comprehensive, or collision. A policy can only cover one car, and you can't get one if your driver's license or registration is revoked or suspended.

How Low-Income Drivers Can Save on Car Insurance

California, Hawaii, and New Jersey have state-sponsored programs to provide low-income drivers with some form of coverage. That doesn't mean they're particularly useful, especially when compared to traditional car insurance.

“It's a last resort for insureds who haven't been able to find anyone to cover them,” Solari explains. Hawaii's program is not specific to car insurance, and both California and New Jersey have very specific guidelines you must follow.

If you know where to look, there are other ways to save money on car insurance. Experts recommend that you begin by requesting quotes and rates via free online tools.

“Select a few quotes that interest you and visit each company's website to read policy and coverage details,” advises Karen Condor, an insurance expert at 4AutoInsuranceQuote.com. “Inquire about the company's business ratings, as well as customer complaints and customer service ratings. This will assist you in locating the company that provides the best value for the price you are willing to pay.”

You can also increase your deductible to reduce your monthly premium costs. Your deductible is the amount of money you agree to pay out of pocket before your insurance coverage kicks in. You might also want to inquire about what discounts are available or what you are eligible for. For example, GEICO offers up to a 22% discount to drivers who have been accident-free for at least five years.

Several insurance companies offer programs that can lower your premiums if you agree to let the insurer collect data on your driving habits. Allstate's Drivewise program and State Farm's Drive Safe & Save are two examples. However, be aware that apps and devices that track your driving may not only raise privacy concerns; they may also raise your insurance premiums if you engage in risky driving behaviors, such as speeding or driving fast.

Usage-based programs, such as Allstate's Milewise, a pay-as-you-go service, can also lower your premiums. Your total cost per day with Milewise is your daily rate plus your per-mile rate. It isn't available in every state and isn't always the best option for you — especially if you have long commutes — but it might work for you.

According to William Miller, an Allstate spokesperson, pay-per-mile plans provide the same comprehensive coverage as traditional plans, including liability, collision, and comprehensive coverage. It also informs Allstate about your driving habits.

The type of vehicle you drive can also influence how much you pay for insurance, but there is no hard and fast rule.

“The higher the cost of comprehensive and collision coverage, because it must cover a higher value,” Solari explains. “However, newer [and] fancier cars are also less likely to be involved in accidents, so there is an opposite effect on your liability coverage.”

Bottom Line

If you're paying more for car insurance than you can afford, you can shop around to find the best rate based on your driving history, credit score, vehicle, and other factors. You can compare offers based on the lowest rate, available discounts, and terms for additional drivers and cars.

You can also inquire with your current insurance provider about any discounts or programs that may be available to assist you in lowering your car insurance costs.