Most people know that insurance companies review a number of factors when determining the premium amounts that customers must pay. However, one not-so-obvious detail that insurance companies look at when calculating a customer’s premiums is whether he or she owns a home as opposed to renting. Doesn’t seem to make much sense, does it?
To illustrate this concept, the Consumer Federation of America (CFA) conducted a comparison study of two identical “customers.” Researchers presented the following facts to Farmers Insurance Company: Two 30-year old women, both living in Louisville, Kentucky wanted car insurance. Both women were full-time employees with the same credit scores and driving records. Both women drove 2005 Honda Civics - same make, model, color and mileage. Both sought the minimum insurance coverage required by Kentucky law.
There was only one difference between the two women “customers”: one owned her home while the second one lived in a rental unit.
The results were as follows: The homeowner’s car insurance premiums totaled $1,640 annually. The renter’s car insurance premiums totaled $2,408 annually for the same coverage - a 47% difference.
The CFA conducted the same types of studies with many of the leading car insurance companies and found similar results. On average, they found that renters pay 7% more for their car insurance premiums than those who own their homes.
The CFA asserts that this patently unfair as the pricing model leaves lower-income Americans at a disadvantage. On average, renters earn far less money than homeowners. And, as a result of the insurance practices, those with less money must pay higher premiums.
CFA Insurance Director J. Robert Hunter issued a statement that, “To raise people’s auto insurance premium because they can’t afford to buy their homes unfairly discriminates against lower-income drivers. A good driver is a good driver whether she rents or owns her home. Insurance companies should not be allowed to target people based on home ownership status.”
Hunter further added that, “Virtually every state requires drivers to buy insurance, but we shouldn’t force them to buy a home in order to get the best price. State insurance commissioners and elected representatives should step in and stop this practice."