By Michael Giusti
Insuring young drivers may put a dent in your wallet, but the damage doesn’t have to be a total loss. With a little planning, the inevitable increase in insurance costs for teenagers and young adults doesn’t have to break the bank.
“You should be prepared for a double-digit rate increase. In some cases, depending on your insurer and your state, it could be more,” said Amy Danise, insurance expert for NerdWallet.com
Studies by the National Institutes of Health, along with the Virginia Transportation Institute found that during the first six months behind the wheel, young drivers were much more likely to find themselves in auto crashes and near crashes than they are in the following year.
“It all comes down to ‘risk,’ and teen drivers are some of riskiest drivers out there. They're not experienced behind the wheel and are more prone to taking risks, so they crash more,” Danise said. “Insurance rates for teen drivers are going to be painful no matter what.”
And more risk means more cost to insure, agreed Kara Macek, communications director for the Washington, D.C.-based Governor’s Highway Safety Association.
“Teen drivers have a higher crash rate than more experienced drivers (three times those of drivers 20 and older, per mile driven). Therefore, from an insurance standpoint, they represent a greater risk and incur higher costs,” Macek said.
The best strategy to combat those high costs, according to the New York-based Insurance Information Institute is to shop around. Each insurance company has a different formula for underwriting each policy, so costs can differ greatly from one insurer to another.
While encouraging independence may seem like the best move for a budding driver, the insurance policy might not be the best place to exercise that newfound freedom. Adding your teen driver to your policy as an additional driver will cost significantly less to insure your teen than if she had her own policy.
What car you assign to your teen driver also matters.
“A good strategy for keeping insurance costs down for teen drivers is to ensure that the teen is driving a safe vehicle,” Macek said. “Safer cars have lower insurance premiums.”
It may be tempting to assign your teen to the newest car in your personal fleet – the one equipped with all the newest and fanciest safety equipment, but for insurance purposes, that may be an expensive move.
“Make sure it's a vehicle that's generally cheap to insure, such as a small SUV or safe sedan,” Danise said. “Getting your teen a sports car would be a very expensive insurance move.”
Remember that older cars tend have lower replacement costs, and so tend to be less expensive to insure.
Working with the agent and experimenting with which car has the lowest premium makes the most sense, because assigning the teenager to drive the right car could mean hundreds in savings each year.
And while no parents expect their young drivers to crash, it still may make sense to actually increase your liability insurance. Even thought that might mean a slightly higher monthly premium, it would mean extra protection in case your teen is found libel for a crash that has costs that exceed the state liability minimums.
If you think about how expensive new cars are, it doesn’t take much of an imaginary stretch to see costs racking up beyond $15,000 or $20,000. And not having sufficient liability insurance may mean a costly lawsuit following a crash.
Another important place to look for savings is the deductible. According to the Insurance Information Institute, raising your deductible from a $250 to $500 or $1,000 deductible can save you 10 percent to 20 percent on your premium. They suggest considering using those savings to increase your liability insurance.
And believe it or not, having a studious teen may translate into better rates as well.
“If your teen is a good student, ask your agent or insurer whether there's a good student discount,” Danise said.
That discount typically kicks in when a student has a “B” average or better.
And speaking of grades, if your young driver is heading away to school, and leaves the car at home, many insurers will reduce rates for students at least 100 miles away from home.
Another classroom-based discount you can apply is through a driver’s training course. Either in-person or online driver’s courses often translate into lower premiums each month.
Premiums are higher for teens based on their often-riskier behavior behind the wheel, so efforts at keeping those tendencies in check can sometimes keep the premiums down too. Many insurers offer a discount to families who write a formal contract between the teen and the parents laying out what behaviors are forbidden and what is expected of them behind the wheel.
If a paper contract isn’t enough of a deterrent, a number of electronic and software-based monitoring systems can also keep young drivers in check and translate to lower rates.
Anything from a global positioning system installed in the car, to different automakers’ installed safety mechanism can potentially translate to lower rates – provided the teen follows best driving practices.
For example, Ford’s MyKey system lets parents program their teen’s car key to limit the top speed of a car and the audio volume. Similarly, Infiniti’s Connection lets parents set geographic limits that cues them in when the teen drives somewhere off limits; and GM’s OnStar has a service that lets vehicle owners see the location of their vehicle on an online map and get alerts on its location at specified times.
Some insurers even offer smartphone apps with an integrated driving agreement between young drivers and parents that sets parameters for when, where and how fast the teen is allowed to drive, with alerts for parents of teens who overstep these parameters.
For young drivers, it all comes down to risk and risky behavior, Macek said.
“Crashes can increase insurance premiums, so another strategy is for parents to help prevent their teen driver from getting into a crash in the first place. They can do this by enforcing (or augmenting) their state’s Graduated Driver Licensing laws, staying engaged in their teen driver’s education process, and modeling good driving behavior,” Macek said.
Danise agreed that proactive measures are the best bet.
“The best strategy you can take is to ride it out and help make sure the rates don't get even worse -- for example, getting higher rates due to a teen's speeding tickets or car accidents,” Danise said.
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