New Jersey highwayRegistering and insuring your vehicle using your sister’s address in the next state or your parents’ house in a neighboring country might seem a clever way to save money on your car insurance rates.

In some cases, doing so might save you hundreds or even thousands of dollars a year. In Bullhead City, Ariz., for example, a 40-year-old man driving a 2012 Honda Accord would pay about $729 a year. But across the Colorado River in Laughlin, Nev., the same driver would pay about $1,580.

You can check out the differences in your city with our average car insurance rates calculator.

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State Minimum: Required liability coverage to drive legally in your state; some states mandate additional coverage, such as personal injury protection, uninsured motorist, underinsured motorist. Liability Only 50/100/50: $50,000 per person/$100,000 maximum per accident for bodily injury; $50,000 for property damage. Liability pays for injuries/damage you cause others. Full Coverage 100/300/100: $100,000 per person/$300,000 maximum per accident for bodily injury; $100,000 for property damage; comprehensive and collision coverage with $500 deductible. Liability pays for injuries/damage you cause others. Comprehensive and collision pay for damage to your car.
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90212 - Beverly Hills: $87
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The temptation is clear enough. But if you’re caught with your car registered at the wrong location, you could see your auto insurance claim invalidated or a bill for unpaid premiums in your mailbox.

And if you live in New Jersey, you might soon face criminal charges.

What is rate evasion?

While fudging on your address might seem harmless enough, it’s a practice known as rate evasion, and it’s considered a form of insurance fraud.

“It’s one of those issues that cause consternation,” says Howard Goldblatt, Director of Government Affairs with the Coalition Against Insurance Fraud in Washington, D.C. The nonprofit’s membership is made up of dozens of insurance companies, consumer groups and government organizations.

With rate evasion, people claim to live in another state or that their car is garaged there in order to pay lower insurance rates. They might also say they live in another, less costly country in the same state.

If you say you live in Pennsylvania and in New Jersey, “you’re posing a risk here but you’re not paying for that risk,” says Chuck Leitgeb, Vice President of the Insurance Council of New Jersey. The insurance advocacy and research group comprise 20 companies that underwrite two-thirds of the state’s auto policies.

Residents of your home state whose vehicles are registered in the right location end up covering your share of the costs by paying higher auto insurance rates, Leitgeb says.

And drivers of the state you falsely claim as your own face higher premiums if you have an accident — because your wreck makes their statistics look worse than they are.

Rate evasion can have unexpected consequences. The Michigan news site found that many Detroit residents had registered their vehicles in other, less expensive parts of the state, depressing the number of registered voters in the city.

Lying about where you park your vehicle is insurance fraud

Rate evasion is particularly common in states such as New Jersey, New York and Florida — all states with sky-high auto insurance rates in some of their metro areas. Residents will use an address or a P.O. box in another location to register their vehicles.

In certain areas of New Jersey, especially northern, urban areas, and the southern part of the state bordering Pennsylvania, it’s not uncommon to see plenty of cars with out-of-state license plates regularly parked in people’s driveways and on residential streets, Leitgeb says.

It’s a similar situation in New York, where cars from North Carolina and Pennsylvania can be found parked in the middle of the week on Brooklyn streets, Goldblatt says. Prosecutors report dozens of vehicles registered at some Pennsylvania addresses.

Many people get away with evading rates. Others don’t.

Their fraud may be discovered once a claim is filed. If insurance companies suspect you’re a rate evader, they can pay a company such as Lexis-Nexis to do a public records search. If your car is insured in North Carolina but your phone bills go to New York, you may have a problem.

Or their neighbors may turn them in. “It drives people crazy,” New York state Sen. Diane Savino told the New York Post. “Constituents are calling my office to report motorists who have out-of-state license plates.”

New York legislators have even proposed a reward for doing so. Some states, such as California, already have online systems to report cheaters.

How do you prevent auto insurance rate evasion?

Some states are moving to crack down on the practice of rate evasion. North Carolina and Idaho, which have some of the lowest auto insurance rates, have made it tougher to register a vehicle there.

In Pennsylvania, the Attorney General’s Office has stepped up rate evasion prosecution. And under current state law, New Jersey’s Office of the Insurance Fraud Prosecutor can’t prosecute such cases because they’re not considered insurance fraud.

A bill working its way through the state’s Legislature would classify rate evasion as insurance fraud, with varying criminal penalties if someone is convicted, including up to 18 months in jail.

— Susan Ladika contributed to this story.

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Contributing Writer

Shivani Gite is a personal finance and insurance writer with a degree in journalism and mass communication. She is passionate about making insurance topics easy to understand for people and helping them make better financial decisions. When not writing, you can find her reading a book or watching anime.