Will my car insurance be cheaper if I am unemployed?

Any change in employment status can affect your car insurance rates. Reduce your bill by (1) driving less, (2) lowering coverage, and (3) seeking hidden discounts.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Sep 15, 2020

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Here's what you need to know...

  • Losing your job can easily lead to financial ruins
  • It’s illegal to drive a car without appropriate coverage
  • There are three different car insurance risk categories

Losing your job can lead to financial turmoil when you are not prepared to cover your living expenses while you are shopping the job market.

Your income has disappeared but that does not mean that the expenses you are obligated to pay will disappear. One regular expense that you must cover regardless of your unemployment status is car insurance.

As long as you own a vehicle that is registered to be operated you are required to maintain your coverage to prevent any lapses.

If you do stop making payments on your coverage, you will start to face some serious consequences for failing to comply with mandatory insurance laws.

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Why is risk so important to insurers?

You are still obligated to pay for the coverage that you receive, but you may be classified as a lower risk with an unemployed status. In the insurance marketplace, pricing is always based on risk.

If you are curious to learn why your employment status will classify you as a better risk, read this guide and learn how car insurance will change for those who have recently become unemployed.

Insurance companies must underwrite policies in order to determine how much a policyholder needs to pay for coverage.

As the underwriter is reviewing an application they will collect information and then determine how likely the household is to file a claim based on their location, their driving habits, their lifestyle and their vehicle.

There are three risk classifications:

  • Preferred
  • Standard
  • High-risk

Having infractions on your record or claims on your history will disqualify you from being a Preferred risk, but you do not have to have these blemishes to fall in a bad risk class.

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What makes you a preferred risk?

To be a Preferred driver, you need to be statistically the safest driver. You will need to have continuous coverage without claims, no traffic convictions, few not-at-fault accidents, and in some states good credit.

Your driving history is one factor that will be considered, but your exposure to claims is also considered.

Those who have few drivers in the household and who do not drive an exorbitant amount miles per year will fit in the class.

Being a safe driver who drives more than the average person could bump you down into a Standard Risk class.

When can an insurer change your car insurance rates?

Insurance companies cannot change your rates whenever they feel like collecting more premiums. The company must follow a strict set of rules as to when companies can go up.

After the 60 days policy, the company must wait until the renewal to run vehicle reports and to review claims histories so that the policy can be underwritten again.

An insurer has the right to raise rates for up to 60 days while a policy is being underwritten.

The only time that a carrier can legally change premiums before a policy renewal is when you initiate a change.

If you call to add a vehicle, change your address, update your employment status, add a driver or change your annual mileage. If you do not initiate change, the company cannot raise your rates.

How Unemployment Can Change Your Insurance Rates

Now you must learn about how occupations and insurance premiums go hand-in-hand. When you are filling out your application for cover, the agent will ask you what you do for a living.

It might not seem like the answer to this question would have a direct effect on your premiums, but it will.

A change in occupation can have a direct and an indirect effect on the cost of insurance.

Here are the many ways that your occupation and your employment status can lead to a drop in your rates:

The Correlations Between Profession and Risk

Your profession and your risk classification go together with some insurers. While not all insurers will rate for an occupation, many do.

If you are in a risky occupation, your rates can go down as an unemployed driver.

Some insurers will give you association discounts if you are a member of a professional association or a worker’s union.

Typically, this is because the company and the employer or association have partnered together to allow members to save in exchange for referrals.

This can lead to a rate increase if you no longer qualify for a discount for being affiliated with your employer.

Pleasure Usage Classification

One of the very important factors used to calculate your rates is vehicle usage. There are three different usage classes: pleasure, commute, and business.

When you are employed and you drive to work, you may be a commuter or a business user. The rates for commuters and business users are higher than the rates for someone who only drives for personal reasons.

When you are unemployed, you can change your usage status to pleasure and save money off of your rates.

Since you have less exposure to incidents and you will not be driving in stressful situations where there is congested traffic, you can reduce your likelihood of filing a claim.

Lower Annual Mileage Estimates

Mileage and usage can go together, especially when you are changing your employment status. If you no longer commute, you will lower your annual mileage.

If you were a high mileage driver, eliminating your commute can put you in a lower mileage band. You can call your agent, let them know about the change, and estimate a lower annual mileage so that you can save.

Make sure you do a fair estimate because this will be verified in the future.

No matter how much you think your employment status is irrelevant, it really is a factor that can affect premiums. Be sure to update your policy when something like this changes.

If you are still unhappy about your premiums after the change, you should start comparing car insurance rates now by using our FREE tool below!

References:

  1. http://personalinsure.about.com/cs/vehicleratings/a/blautominimum.htm
  2. https://www.statefarm.com/insurance/auto/resources/high-risk-auto-insurance
  3. https://www.thebalance.com/how-to-get-your-driving-record-527249
  4. https://www.thebalance.com/what-is-an-insurance-renewal-527419
  5. https://www.nationwide.com/best-car-insurance-prices.jsp
  6. https://www.iii.org/article/what-determines-price-my-auto-insurance-policy
  7. https://www.moneycrashers.com/factors-affect-car-insurance-rates/
  8. http://bottomlinepersonal.com/12-hidden-discounts-on-car-insurance

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