In every state except New Hampshire, drivers are legally required to have an adequate amount of auto coverage. If you know the basics of insurance, then you’d know that the yearly cost of insurance can be anywhere from $500 to $2,000, depending on the type of coverage. The minimum required coverage averages annually at $563, while full coverage averages at $1,738.
For individuals and families with a lower income or budget, this can be a financial strain for the years to come. Fortunately, there are state-sponsored insurance options and specialized coverage from certain insurance companies that deal in low-income auto insurance at an affordable price.
Following the law regarding insurance shouldn’t be expensive or hard. By shopping around and doing some research about your state’s minimum insurance laws and requirements, you may meet the requirements for low-income insurance. Here’s how you can qualify and what to know when it comes to this special type of coverage.
What exactly is low-income car insurance?
Low-income auto insurance isn’t a regularly offered policy. It’s specialized insurance for low-income policyholders and households. Since 49 out of 50 states require a degree of insurance coverage while driving, low-income insurance satisfies those requirements affordably for low-income customers. Like the minimum insurance requirement laws, the purpose of low-income car insurance is to keep uninsured drivers off the road.
Four states, California, New Jersey, Hawaii, and Maryland, offer their own low-income insurance for residents. Typically, state-level coverage has some low-income requirements that applicants must meet. You must make a certain amount of money, have a tangible history of government assistance, and in some cases, must have specific health conditions. A valid driver’s license and a clean driving record are some more common qualifications. The value, make, and model of the car matters too, as states won’t insure a car that’s over $25,000.
Lastly, low-income coverage is best used as an informed, last resort after comparing and contrasting your options. Low-income insurance offers the minimum liability and medical costs. If you’d want your car and damages covered, then you would have to additionally purchase collision and/or comprehensive insurance.
What are some ways that those states offer their own low-income auto insurance?
As previously mentioned, only 4 of the 50 states offer their own government-sponsored car insurance for low-income drivers and households. Depending on the state, they go by different names with varying requirements and qualifications.
Here are those four states and how to qualify for low-income insurance if you’re a resident:
- California. California’s low-income automobile insurance program (CLCA) provides affordable coverage to qualifying drivers. The requirements are a good driving record, at least 19 years of age, valid license, and an individual income of about $30,150, or fall within 250% of the poverty level set by the federal government.
- New Jersey. Home to the special automobile insurance policy (SAIP), which covers a low-income driver’s medical expenses after an accident. You may be required to have Medicaid already. The annual cost is an average of $365. Comprehensive and collision coverage are never included.
- Hawaii. As the name suggests, Hawaii’s aid to aged, blind, and disabled program (AABD) not only helps low-income drivers but also drivers with declining health. Drivers with vision issues and a mental or physical handicap are eligible for AABD coverage.
- Maryland. The state of Maryland created the automobile insurance fund for their low-income residents. They primarily give coverage to people with a poor credit score or those unable to afford regular coverage. Drivers with a poor record are even able to find affordable coverage with the automobile insurance fund.
These are only the specific state-mandated plans for low-income uninsured drivers. Naturally, if you don’t live in any of the aforementioned states, then these may be impossible for you to apply for. However, if you put in some research, you may find that several insurance companies in your area offer minimum required liability insurance at a low-income cost.
What’s a state’s minimum required car insurance, and why are we supposed to have it?
The insurance that states require keeps people safe by holding drivers accountable for their own bodily injury and property damage in a traffic accident. It doesn’t matter to the government that you and your car are covered. Rather, it’s the damage you would cause and people you could injure in an accident that is the legal priority.
For this reason, collision and comprehensive insurance are add-on policies and are never included in low-income insurance of any kind. Half of the states also require uninsured or underinsured motorist coverage, while some require personal injury protection.
For a bodily injury liability, the legal requirement is $25,000 per person and $50,000 per accident. Property damage liability can go anywhere from $5,000 to $25,000. Low-income drivers may not be able to budget these costs, so insurance specifically for them that satisfies the same requirements is the smartest move.
A family of four with an income of $60,000 in California, for example, may apply for their state-sponsored coverages. Other families in other states may have to do some comparing and contrasting with insurance companies.
How do I find the right low-income car insurance for me?
Finding companies that offer low-income car insurance is all about comparison. You won’t need to narrow your search down locally as both national and regional insurance companies do offer affordable low-income coverage.
Here’s a couple of tips and tricks for smart low-income insurance shopping:
- Pay upfront. Paying for your auto policy all at once may be a big what if for low-income drivers. However, paying your coverage upfront can certainly save you 5% to 15% on your premiums annually.
- Prioritize discounts. There are several types of discounts that can apply towards a new policy purchase. A good driver discount can save a new driver up to 30%, and defensive driving course certifications are known to lower premiums. You may be given a discount based on your job or GPA if you’re a student. Insurance companies are also eager to bundle their home and auto plans for a discounted amount.
- Mind your credit score. Hawaii, Massachusetts, and California are the only states that don’t consider the credit score of new low-income policyholders. In most cases, a good credit score will save money on buying coverage. A good credit score would be around 670 to 739.
- Consider your car(s). Low-income insurance will only cover cars that are valued at $25,000 and less. A lot of the newer luxury or tech cars wouldn’t be covered by a low-income policy. At the same time, you may be given discounts for your car’s safety features such as a Lojack. What’s more, there are discounts for having multiple cars under a single policy.
- Keep a good driving history. Aside from qualifying for the good-driver discount, you’ll also want an above par driving record for the insurance companies to calculate your premiums. If your driving record looks better than the companies’ loss/revenue ratio, then you’ll receive favorable rates.
What else does the insurance company look at when determining my low-income insurance rates?
Before anything else is discussed, you should know that insurance companies will never directly use your income in calculating your insurance rates. As previously stated, they may use something like your credit score, driving history, or car type. Insurance companies have found that higher-income policyholders tend to be less risk on the road, so they’ll want to weigh whether you are too risky or not. It’s an extremely common practice among insurers.
Some of the factors which may affect your low-income premiums are simple things like age, gender, marital status, or miles driven. The ones they pay more attention to are your insurance coverage history and where you live. The insurer may request your zip code and calculate your premium based on your area’s crime rate, which can be counted as high risk. Your insurance history will be checked for any gaps in coverage. They’ll also look into your claims history to see if you frequently filed any. Again, the fewer claims, the lower your rates will be.
How much does low-income auto insurance cost?
The required liability coverage by the state is often the cheapest standalone plan. This assumes that the driver forgoes the comprehensive or collision coverage. Adding these coverages to your policy can cost an additional $300 to $500 annually. A good rule of thumb is to drop comprehensive or collision coverage if your rates are more than 10% higher than the payout you’d receive at the time of an accident. This typical insurance bill would be $1,736 monthly.
If you cannot include that in your budget and are looking for something affordable, then low-income auto insurance is the better choice. The premiums vary by state and the insurance company. A low-income driver may pay as low as $250 or as high as $1,092. However, the average is around $300 to $600. That’s about $40 to $200 a month per vehicle. Of course, this average is only for the national insurance brands. You may find even lower premiums with regional insurers.
Here’s another affordable form of car insurance that is also recommended for low-income drivers.
If a standard insurance policy or one mandated by the government is out of your budget, then you might want to consider pay-per-mile car insurance. Normal rates are based on all the personal and vehicle information we’ve just gone over. Pay-per-mile rates are solely based on the number of miles you drive. Usage-based insurance is the official name for it.
If your monthly mileage adds up to less than 1,000, then pay-per-mile may be the most sensible option for you. This is an especially economic plan for low-income drivers or households using their vehicles for essential and work travel. The average premium for this kind of coverage is at least $20 a month. The rate may also be determined by the driving record and history of the driver(s). And yes, it does come with comprehensive and collision coverage.
What kind of insurance coverage do you truly need?
By now, you have all your big questions on what low-income insurance covers, how much it costs, and how you can qualify. One more important thing to always think about is how much coverage you’ll need. This is the key to not only getting the best coverage but saving money as well. A lot of low-income drivers under a new policy will set their deductibles to a higher amount. Granted, you’ll have to pay more in the event of an accident, but your premium will be much lower.
If you feel that you just need a vehicle to drive to and from work, pay per mile by the best national or regional insurer may be the cheapest option. Of course, reducing coverages on your policy is another way to lessen your monthly bills. The bundle discount only works for new policyholders anyway. The 10% rule that was previously mentioned is used to gauge when an optional coverage is costing you a little more than you would like.
Should you choose to drop your comprehensive or collision insurance because it exceeds 10% of the payout, be aware that you don’t want to lower it past anything you can afford to pay out of pocket.
Lastly, if you choose to put your car in storage, it’s best just to get comprehensive coverage as opposed to just canceling your policy. A canceled policy is a red flag for insurance companies and can result in higher premiums. Following insurance laws shouldn’t be expensive. Ask your insurer about low-income policies today.