How Much Do Zip Codes Affect Car Insurance Rates?

People choose their location for many different reasons. Some people like to be close to work or children’s school. A few others may have the money and flexibility to choose where they live and go for the best neighborhoods. Lower income families may not have many choices and look for apartments in locations with low rents.

These areas can be poor and troublesome neighborhoods where crime rates including auto crimes can be higher. Also, they may be densely populated areas with high level of congestion on the roads. So, how much your zip code can save you money or increase your premium? This question has been regularly dealt with in the press and vehicle insurance websites.

How Auto Insurers Look at Applicants’ Addresses?

First of all, it is legal for car insurers to take zip codes into account while they are preparing their rates. And generally, each company has their own formula that rates each zip code based on traffic, crime and accident statistics. The fact is that their formula is secret they there are questions as to what else they may be looking at when they set these rates.

A few authors have suggested in the past that some carriers may be charging extra for poorer neighborhoods even it is not warranted by the losses suffered from policyholders in such zones. This is a hot topic and we should leave it aside by saying that it is difficult to deny these allegations if the companies doesn’t come forward and explain their pricing strategies.

How High Can Your Premium Go If You Live in a Poor Neighborhood?

Several quote based comparisons carried out by various authors and sites suggest that you may end up paying as much as twice more due to your zip code. This would be a lot clearer when you compare city centers with suburbs. Generally, city centers can be really expensive for many reasons. There are higher concentrations of traffic as you go towards the center of most cities. Parking spaces are limited and private parking is scarce. Accident, auto theft and vandalism claims are higher as well.

As a result it is not a surprise to see much higher rates in the centers with high population.  You shouldn’t be surprised if you have to pay twice more and this causes serious problems for low income families. Many cannot afford the costs and give up driving. So, they may be driving without insurance. Cities like Detroit and Chicago have higher uninsured drivers rate compared to rest of the country mainly because of these reasons.

However, drivers in some pockets of the cities can be paying a lot more than the drivers in their neighboring zip codes. This may be because of the other factors that are taken into account in premium calculation. These are mainly credit scores, educational background and profession. Certain areas may have a higher concentration of working class motorists. When high rate of unemployment is taken into account as well you can see why those motorists may not have high credit scores.

Would Moving Out Help?

Moving out of these areas to another zip code zone can save you a lot on your premiums. This has been demonstrated many a times. The savings can be much sharper in certain regions and depending on which direction you go. If you are moving further out of the city center you can see the rate changes clearly.

This entry was posted on October 25, 2013. Bookmark the permalink.