As a father of two teens currently learning to drive, I can personally attest that this process can be a little scary. But it is also quite rewarding to guide your children through the process of yet another step towards adulthood.
It probably won’t come as a surprise for me to tell you that adding a teenage driver is guaranteed to raise your rates. Insurance companies base their rates on statistical averages, and teenage drivers statistically have more accidents than older drivers. So your rates are going up; the only questions are how much and what can be done to lessen the impact on your pocketbook.
First, an idea that sounds plausible but doesn’t work. Sometimes parents ask me if it would be better to put Junior on his own policy when he gets his license. That way, they reason, Junior won’t increase the rates on their other vehicles. Unfortunately, this idea for “beating the system” usually won’t work. Insurance companies base their rates based on prior loss trends and statistics – and apparently, there are a lot more claims on young-driver-only-policies than there are on family policies. By insuring your new driver along with you, you also take advantage of many discounts that may not be available to them separately, such discounts for multiple vehicles, multiple policies, etc.
There are some things that can be done to keep your rates low, however. For example, most insurance companies provide a discount if your student is averaging a 3.0 GPA or better or is ranked in the top twenty percent of his or her class. The thinking is that good grades are a sign of responsibility that may translate over to how carefully a teen perform behind the wheel. If you have a child approaching driving age that is not quite making the GPA cut, now is the time to work with them to see if they can get over the hump, so to speak. The good news is that most carriers are willing to use either your last term GPA or your cumulative GPA, so working to qualify for that discount may not be as difficult as you may think.
Another thing that will affect your rates is the household vehicle situation. If your teen doesn’t have full-time access to a vehicle because there are fewer vehicles than drivers to drive them, you may be able to classify them under the “occasional driver” rate, which should be less expensive.
If you do plan to give your child their own vehicle to drive, you could consider an older vehicle with a value low enough that you feel comfortable not fully insuring it. The savings for assigning them to a “Liability only” vehicle are sometimes considerable and sometimes not, depending on how your carrier prices the policy. But this savings method does have its own downside: As mentioned above, your young driver is statistically more likely to get in an accident than you are, meaning the odds are higher that you might have to foot the bill for repairs or for a replacement vehicle if their car wasn’t fully insured.
So at what point in the licensing process will your insurance rates go up? The good news is that most carriers don’t raise rates when your child gets their permit. (This rule is not universal, you should confirm this with your insurance agent.) But when your child does get their license, they will have to be added to your policy immediately. Sometimes I hear from a parent that their child is getting a license now but they don’t want to insure them yet, because the plan is to wait for a few months before they are allowed to drive. If that is the plan, then I also suggest waiting before you sign off on their license, because if the state says your child is a driver, your insurance company is going to consider them to be a driver as well. Be sure to keep your insurance agent in the loop regarding the licensing progress and to let your agent know when the big day occurs.
I’m often asked whether a teenager’s vehicle should be titled to them or their parent(s). Some parents give their child a car as a graduation present, while some other teens save up and buy their own. If your child is old enough to take legal title (in Minnesota, usually 18, but 17 in some cases), the inclination may be to title the car in their name instead of yours. However, you need to understand that this could have insurance implications. Many insurance companies will only allow you to insure vehicles that are actually titled to you, based on the insurance principle of “insurable interest”. Titling the vehicle to only your teenager could result in having to buy them a separate policy, which could be up double or triple the cost of insuring them under your own policy. These rules and rates do vary from carrier to carrier; so be sure to check with your agent before you finalize the purchase of the vehicle. (Here’s an idea: Consider “co-titling” the car to both you and your child; this can be a great solution in many of these cases.)
Many parents ask how long their child can stay on the family policy. This often comes down to two issues: vehicle ownership and residency. As discussed above, your name may need to stay on the title of their car in order to keep them on your policy. But once your child moves out and onto their own, they are probably going to need their own policy. (Many carriers will require this, and even if not, it is advisable so that they keep well-rounded coverage in place, and you may wish to get off their title for liability reasons anyway.) Keep in mind, however, that going off to college is not usually the same as moving out. As long as your child doesn’t establish a permanent residence, if they lived with you before moving into temporary student housing, they are still considered a resident of your household.
Before I close out this post, I’d like to take a moment to talk “big picture”. The big picture is that your teenager learning to drive is another milestone in their journey towards the responsibilities of adulthood. As parents, it is our role to teach them what these responsibilities mean. When I started driving, my parents required that I first have a job and reimburse them for their increased insurance costs. I knew that if I got in an accident or received a ticket, I’d have to pay even more. Conversely, if I kept my grades up, I knew I’d pay less. I suppose that this approach might seem harsh to some, but for me it was an important lesson in learning how life works. While you’ll need to personalize your own game plan with your teen driver, I encourage you look for opportunities to weave the valuable lessons of responsibility into it.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
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