Why, or how does being poor or having bad credit cause insurance companies to charge more for insurance?
In: Economics
Okay. Let’s say Joe and John go to buy insurance for their cars. Joe has an 800+ credit rating and pays his bill every month. John has a 400 credit rating and misses his payment every 2 or 3 months. Let’s say that for every year of owning a car, a person makes $1,200 in claims on their car.
Joe pays $100 every month… and at the end of the year somebody dings his car and he makes a $1,200 claim.
John pays $100 every month but he misses two payments. At the end of the year, somebody dings his car and he makes a $1,200 claim. The insurance company is out $200.
The insurance company decides it has to charge John more money, or else it isn’t worth insuring John.
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