Adding a young driver to your household car insurance policy can substantially raise your rates -- it can even double them, according to the nonprofit Insurance Information Institute (III).
However, there are steps you can take to ease the strain on your family's finances.
Why are young drivers so expensive to insure?
According to Michael Barry, a spokesman for the III, adding a young driver to your coverage is so expensive because teens often engage in risky behavior behind the wheel.
"Teens have high crash rates," says Russ Rader, spokesman for the Insurance Institute for Highway Safety. "They have the twin demons of inexperience and immaturity. They are much more likely to take risks behind the wheel, to speed, to tailgate, to become distracted.”
But what kinds of risky behaviors do teens partake in?
A 2011 Centers for Disease Control and Prevention survey questioned students in grades nine through 12 in a survey that examined on risky behaviors that contribute to death and injury.
The survey of students explored a variety of risky behaviors. In part, it found that:
- About 24 percent of those questioned said in the past 30 days they had ridden with a driver who'd been drinking alcohol.
- About 8 percent said during that period, they had driven a car after drinking alcohol.
Here are five tips for minimizing your insurance costs when your teenage son or daughter begins driving.
1. Encourage your teen to get good grades.
According to the National Safety Council, studies have shown a strong correlation between good grades and driving safely. Jordi Ortega, a spokesman for State Farm, says many insurers extend discounts to students who maintain a "B" average or rank in the top 20 percent of their class. To achieve a "B" average a student in high school or college must attain a grade point average of 3.0.
But how does your student prove he or she's a good scholar?
Carriers may ask for proof in the form of a report card. Insurers typically offer discounts of up to 25 percent for students who maintain good grades, says Carole Walker, executive director of the Rocky Mountain Insurance Information Association (RMIIA).
"Good grades really do pay off," she says.
2. Buy an older car with good safety features
Cars that are 10 years old or older typically are the cheapest to insure for teen drivers, Barry says. That's because older cars have lower values and are cheaper to replace.
If you own multiple cars, ask your insurer if you can assign your teen to drive the least valuable car in your household. Just remember that once you agree to assign your teen to a particular car, it's the only car he or she can drive and receive insurance protection.
Not all older cars have the same equipment. If you choose an older car for your teen, make sure it has good safety features, such as stability control and antilock brakes.
3. Drop collision and comprehensive for low-value cars
Barry recommends you drop collision and comprehensive coverage on low-value cars used by teen drivers. If you don't, you may end up paying more in premiums than you'll get back from the insurer if the car suffers crash damage.
If you have to make a claim, your insurer won't pay out more than the market value of the car.
For example, New Jersey insurance agent Kevin Foley says if you had a car worth $1,000 with an insurance deductible of $1,000, you would end up receiving nothing if the vehicle were totaled or heavily damaged. If you spent another $150 per year for comprehensive and $250 per year for collision, that money would be wasted, he says.
Collision covers the cost of fixing your vehicle if an accident occurs. Comprehensive pays for damage that doesn't result from auto collisions, such as theft, fire or collisions with animals on the highway.
4. Raise your policy deductible.
If you raise your auto policy deductible, you're taking on a greater share of the repair costs if your car is involved in an accident. The III says raising your deductible from $250 to $1,000 can save you as much as 20 percent on your premium.
If you plan to save money this way, you need to make sure you have enough cash on hand to cover your deductible if you make an accident claim.
You may want to take the money you save from raising your deductible and start a savings account to cover your share of the repair costs in case your teen has an accident.
5. Shop around for car insurance.
There's no substitute for doing price comparisons when it comes to buying car insurance. The more quotes you get, the more likely you are to find the lowest prices for young drivers. Insurance rates for teens can vary by hundreds of dollars per year among insurance companies, according to the RMIIA.
Because of wide access to the Internet, shopping for insurance is easier than ever before, Barry says. You can compare quotes by shopping online or get personalized attention by working with an insurance agent.