Driving a car always comes with a risk of an accident, minor or major. This is why it is mandatory in almost all the states in the US to have liability insurance (along with some other insurance policies, too) to drive a car legally. Since insurance companies offer this coverage, they consider every possible factor in assessing the risk. But did you know that your education impacts your auto insurance rates? It is accurate, and here’s how.
Factors that Affect Auto Insurance Rates
Auto insurance companies are risk assessment companies that take in all the factors that affect a person’s driving abilities, the cost of maintenance, risk of theft or damage, etc. All these factors help them decide the auto insurance policy price and premium rates. So higher the risk of an accident or someone making a claim, the higher the insurance policy price since insurance companies are businesses and need to make a profit.
So the usual and sensible factors that affect the auto insurance rates are:
- Driving record
- Area or locality where the car is kept (for theft and crime rate)
- Type of vehicle
- Coverage gaps
- Traffic violations
All these factors are taken into consideration. But what many might not know is that most companies look at your education as a factor in deciding the insurance rates. Whether these companies take education as a direct or indirect factor is unknown. Still, multiple studies and surveys have shown that education contributes to car insurance prices.
So in a way, you could have an excellent driving record and yet won’t be able to get the cheapest insurance rates from some companies if your education is not up to the mark.
How does Education Impact Auto Insurance Rates?
Since insurance companies have never openly admitted to considering education as a contributing factor, it is difficult to deduce how or even why education impacts auto insurance rates. But we have some information that could point us towards the reason.
Statistics have shown that people with higher, better education are less likely to be in a car accident or even make fewer claims in a year. This factor alone is enough to make insurance companies consider it. But there’s more.
So since people with higher degrees or more degrees are less likely to make a claim, insurance companies offer them cheaper insurance and premium rates. This sounds very nice for people with a good education. But what about people who are dropouts or barely made it till high school? Well, it’s not too good for them.
People with lower education tend to pay higher auto insurance prices and premiums. How much higher? A study found out that, on average, people with lower education can pay as high as $400 more per year than people with a good education.
It is not just limited to education. Another study found that people with blue-collar jobs (connected to education) had to pay much higher than people with better-paying jobs. This relation leads to another factor that is lightly connected to education and affects the premium rates for auto insurance.
Credit and Education
It is very well known that your credit score affects auto insurance rates and premium prices. Some states, including California, have banned this practice, but most states allow it. It is interesting to see that credit score affects auto insurance premiums because people with good credit scores are more likely to pay the premium on time than people with a poor credit score.
So if you have a good credit score, you get lower premium rates and vice versa. The credit score is affected by your education since better socio-economic conditions lead to better education, which statistically leads to better jobs and higher credit scores (since you can afford to pay dues on time). The relation of credit score with auto insurance rates is also connected to education indirectly.
Discriminatory or Reasonable?
It can be debatable whether such factors as education should be considered a price deciding factor for auto insurance. From one side, it makes sense for auto insurance companies to consider all the factors that might affect the risk of an accident or failure to pay dues. Since they are investing a lot, and statistics have shown relevant relations, companies want to consider education as a price-deciding factor.
But on the other hand, there is no doubt that considering education in deciding auto insurance prices is a discriminatory practice that undermines the already deep-rooted socio-economic divide. Some communities/races/people were born into a low-income family (which was poor, perhaps due to government policies that kept them poor), and they have to pay more than other people, even if their driving record is clean.
This unfair reason is why many states are trying to ban education (as well as credit score) as a factor in deciding the price of insurance. But only a few have succeeded. It is unfortunate that people who are victims of such an economic divide still have to suffer for it, even though it isn’t their fault.
There is a slight silver lining here. Many insurance companies such as Geico offer great discounts to students with good grades. So even though education as a factor in deciding auto insurance rates is unethical and wrong, there is still a way to get some prices slashed off your insurance policy by being a good student—a win-win situation.