Because they present more of a risk, auto insurance rates are generally higher for teenage drivers. However, there are some ways you can both protect yourself financially and lower the cost of insuring your teen by doing the following:
Understand the Risk
It is important to talk to your teen about the relationship between auto accidents and insurance costs. Teens often forget that the cost of owning a car includes auto insurance. Explain that a driving infraction or being in an accident can drive up their insurance costs.
Insurance companies differ in how they price policies for young drivers, so spend some time researching prices to find the best fit for you and your teen.
Insure Your Teen on Your Own Policy
It is generally less expensive for parents to add teenager to their insurance policy than for teens to purchase their own. By insuring your teenager’s car with your insurance company, you can also qualify for a multi-vehicle discount.
Assign Your Teen to the Right Car
Find out how your insurer assigns drivers to cars—some insurers will assign the driver who is the most expensive to insure (generally the teenager) to the car that is the most expensive to insure. If possible, assign your teen to the least valuable car. Some insurers will allow policyholders to do this if the number of automobiles equals or exceeds the number of insured drivers on a policy. With this kind of arrangement there can be no exceptions; your teen must use only the car to which he or she is assigned, even in an emergency. If your teen is involved in an accident with an unassigned car, penalties could be imposed and your premiums might increase.
Increase Your Liability Insurance
Should your teen get into an accident, state minimums for liability insurance will not be enough to fully protect you from lawsuits. Many vehicles today are worth more than $15,000 and medical bills for injuries can easily exceed $20,000 for one person. If your teen is found negligent in an accident and the damages exceed your insurance limits, you will be held financially responsible and could be sued in court for those amounts not covered by your insurance.
Consider an Umbrella Liability Policy
In our litigious society, you may want to have an extra layer of liability protection. That is what a personal umbrella liability policy provides. An umbrella policy kicks in when you reach the limit on the underlying liability coverage in a homeowners, renters, condo or auto policy. It will also cover you for things such as libel and slander. For about $150 to $300 per year you can buy a $1 million personal umbrella liability policy. The next million will cost about $75, and $50 for every million after that. Most insurers will want you to have about $250,000 of liability insurance on your auto policy and $300,000 of liability insurance on your homeowners policy before selling you an umbrella liability policy for $1 million of additional coverage.
Raise Your Deductible
Going from a $250 to $500 or $1,000 deductible can save you 10 percent to 20 percent on your premium. You may want to use those savings to increase your liability insurance.
Is Your Teen Going Away To School?
When your teen heads off to college, you may be eligible for lower premiums, providing he or she leaves the car behind. Many insurers will reduce rates for students attending a school at least 100 miles away from home who do not have a car on campus.
Good Grades + Driver Training = Discount
Most insurance companies will give discount on auto insurance to students who are maintaining at least a “B” average in school. Another way to earn a discount is by having your teen take a recognized driver training course.
Contact Your Insurance Professional
When your teen is ready to get his or her learners permit, make sure to have a conversation with your insurance professional so he or she can clearly explain the costs involved in insuring a teenage driver. The good news is, as your teenager gets older, insurance rates will drop—providing he or she has a good driving record.