Recent economic woes have triggered a wave of lost jobs, falling 401(k) balances and vacant homes.
Such fallout is well-documented. But it's a safe bet that relatively few people have considered the effect that a sagging economy has on their car insurance rates.
The National Association of Insurance Commissioners cites several ways that recent economic trends affect car insurance costs. What follows are four events that could cause your rates to rise – or fall.
1. You have to move.
The Great Recession destroyed millions of jobs throughout the country. But some areas suffered more than others. Places like Nevada, Michigan and Florida still are hurting, while Texas and North Dakota thrive.
If you're out of work, a move to a booming city or state often is the best way to find employment. But each time you put down roots in a new ZIP code, your car insurance rates may change.
Insurers generally look at the history of claims in a ZIP code – commonly known as a "loss history" – when determining rates. Drivers who live in an area that generates many claims typically will pay more for coverage.
So, if you move from a sparsely populated town to a congested city, expect a premium hike, says Bob Passmore, senior director of personal lines policy at the Property Casualty Insurers Association of America, a trade group.
"If you live somewhere where there are more cars, there are going to be more accidents," he says.
Moving to a ZIP code with a higher crime rate also can result in higher car insurance costs, Passmore says.
2. You're forced to cut back coverage.
A sudden pay reduction or job loss may leave you desperate to cut expenses anywhere you can. It can be tempting to slash your premium by trimming insurance coverage.
Doing so certainly will save you money in the short run. But it also poses serious long-term financial risks. Dropping optional types of coverage such as collision and comprehensive can save you hundreds of dollars, but it leaves you on the hook to pay out of pocket for damage to your car.
Scaling back on liability coverage is even riskier. Liability insurance helps pay for damages you cause to another car or its occupants. Merely purchasing the state-mandated minimum amount of coverage leaves you vulnerable if damages exceed that amount.
Minimums vary by state, but they may be as low as $10,000 per person/$20,000 per accident for injuries, and $5,000 per accident for property damage.
"If you hit somebody's Jaguar, you might not have enough to cover that, let alone if you hurt someone," Passmore says.
If you crash into and seriously injure or even kill the occupants of another vehicle, you may even be sued. Given such risks, maintaining appropriate levels of liability coverage is important for everyone, says Pete Moraga, a spokesman for the nonprofit Insurance Information Network of California.
"If you're driving with minimum liability, you're leaving yourself exposed to major financial harm," Moraga says.
3. You drive less.
Sudden unemployment is not a pleasant experience. But savvy drivers can turn that negative into a small car insurance positive.
"Customers who are no longer using a vehicle to commute to work may be able to reduce their rate," says Justin Herndon, a spokesman for Allstate.
When you have a job, the length of the commute helps determine your insurance rate. The more miles you drive, the better the odds you might end up in a crash. So, you pay more.
If you are not working, your insurance company may agree to switch the status on your policy from "commute" to "pleasure use." This can net you a discount if you drive relatively few miles a year, such as 5,000 or 7,500.
Passmore says savings vary, but they can be substantial.
"If you are someone who doesn't go to work, you want to make absolutely sure your insurer knows," he says. "It's definitely worth your time."
In addition, insurers such as Allstate, Progressive, State Farm and GMAC promise discounts to motorists who both drive fewer miles than the average motorist and meet other requirements.
Drivers must install an electronic device that collects various types of data, including the number of miles they drive. State Farm says discounts can reach 50 percent, while Allstate and Progressive offer up to 30 percent off your insurance bill. GMAC offers a discount of up to 54 percent to OnStar subscribers who drive no more than 2,500 miles a year.
4. Your credit score is damaged.
Bruised credit is a common wound in these economic hard times. If you can't pay the mortgage or if you skip a credit card payment, your credit is likely to suffer.
Unfortunately, the agony of a poor credit rating only deepens if you have car insurance. Passmore says insurers use "some elements of your credit score as a predictor of who is going to have a claim and who is not."
The resulting measure – commonly referred to as an "insurance score" – helps determine the rate you are charged.
Passmore says dinged credit is more likely to affect rates if you shop for a new policy. A policyholder who already is with an insurer is less likely to see a rate increase on his or her existing policy.
However, Passmore says that some companies occasionally go back and "re-underwrite" existing policies from time to time. If that happens, bruised credit could result in your rate being adjusted higher, he says.