Why where you live can cost you

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By Melanie Lockert, personal finance writer and author of Dear Debt

When choosing where to live, a number of factors come into play. Maybe you want to live close to your family? Or near public transportation? Perhaps you want something with a good school district? On a more practical level, you'll probably choose where to live based on what you can afford.

But it’s not just the cost of rent or a mortgage payment to consider. Where you live can cost you in other areas that you may not even realize, like insurance rates.

How insurance rates vary based on where you live

Where you live plays a major role in determining your car insurance, health insurance and renters insurance rates. The neighborhood you live in, risk factors, crime, and more all affect how much you pay for insurance premiums.

While there are variances state by state, rates could be drastically different within just a few blocks of the same city.

When Dallas-dweller Dr. Eric Patrick moved a few minutes away, his car insurance rates dropped significantly. Patrick, the founder and Chief Investment Educator behind Black Market Exchange notes that his car insurance went down a whopping $60 per month — or $720 per year, simply by moving to a new neighborhood less than ten minutes away from his previous residence.

For Eric Rosenberg, founder of personal finance blog Personal Profitability, his car insurance went up after moving from Oregon to California. Luckily, with some additional research he found new insurance that was cheaper than what he paid in Oregon.

When I moved from Pasadena, California to Hollywood, California my renter's insurance as well as health insurance increased dramatically. My health insurance rates went up $75 more per month — which I was shocked to find out after calling my healthcare company and requesting a change of address. I knew that my renter's insurance would go up as I moved from a suburban neighborhood to a densely populated area which inherently has more risk, but was shocked about my health insurance rates.

I chose to live in my East Hollywood neighborhood because it is more affordable (for LA standards) and I don’t need a car in this neighborhood. In my quest to save money, I didn’t realize how much more I’d be paying in renters and health insurance for living in a neighborhood that is densely populated and a little rough around the edges.

“When looking for a place to live, consumers should consider insurance costs as well. On occasion, an inexpensive neighborhood may prove to be less so when increased rates are considered,” says Michael Isaac, CEO of Omni Safe Insurance.

Isaac notes that car insurance rates can vary widely depending on neighborhood — and there may be factors determining your rates you may not even be aware of.

“While some reasons are obvious — for example, high crime areas can mean a greater risk to the safety of your vehicle — other factors are less so,” he says. “For instance, living in a population-dense area means more cars on the road and a higher risk of accident. Your rates may also be higher if you live in an area with a large number of uninsured drivers or a neighborhood with more accidents than average. In some cases, your address can increase rates by nearly 100%.”

As you can see, where you live can make a huge difference in your insurance premiums — for better or worse. Regardless, it’s important to consider how where you live will impact your insurance premiums and if your rates go up after a move, you should do some comparison shopping to see if you can get more affordable rates. Even so, there’s no doubt that some neighborhoods are costlier than others when it comes to insurance.

On top of where you live affecting your insurance rates, your credit score may even play a role in how your premiums are set.

According to Consumer Reports, car insurers may look at your credit score when setting rates as a way to predict the likelihood you’ll make a claim. In some cases, having a poor credit score could increase your insurance premiums significantly and end up costing you more.

For some folks living in poorer neighborhoods, access to financial resources and credit may be difficult. In other words, lack of access could lead to lower or nonexistent credit scores, which could ultimately mean paying higher insurance premiums.

What can you do?

It can be frustrating to have your insurance go up based on where you live — and a wonderful surprise if it happens to go down. But if your rates are on the rise, do some comparison shopping to see if you can find better rates. Additionally, keep your credit score in good shape and be aware of how where you live can cost you even more than you realize and factor that into your budget.

Written on May 30, 2018

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