If you have a teen or young adult in your home the cost of her owning and operating a vehicle is not just the price of the car and the high price of gas, but the insurance required to keep it on the road. Car insurance rates can be high for any driver, but they typically jump to another level for drivers under age 25. Car insurance companies charge higher rates for inexperienced younger drivers, but the disparity in rates may be more than you ever expected.
Insurance companies don't judge young drivers as a people but as potential problems to be dealt with in the future. The amount of risk each driver presents to the insurance carrier is what matters when it comes to calculating premiums. As a whole, young drivers are inexperienced, are involved in more crashes and drunk driving incidents, and generally less responsible than older drivers. They do not have a home and a family to take care of and their actions have far less consequences than many adults. As a result, insurers are less eager to insure young drivers and charge high premiums to make it worth their while.
Age-based insurance pricing is one of the most blatant and widely accepted forms of discrimination there is. Rather than basing rates on individual performance, car insurance companies pre-judge applicants using age as the sole criteria in many cases, and penalizing them from the start. While it may be more fair for policy holders to pay a flat rate that increases with each negative infraction, most insurers hold to the old standard of charging everyone more, just in case.
Besides charging higher premiums, insurance companies watch younger drivers more closely for tickets and accidents. For each infraction the insurance carrier may assess a penalty or further rate increase to offset the perceived increase in risk posed by dangerous driving habits. When added to the already elevated rates younger drivers pay, the resulting bill can be prohibitively expensive. Every ticket new drivers receive and accident they're involved in is reported to the DMV who then adds it to the driver's record. If the insurance company finds out there is a strike against the driver, she can expect to pay for it over the long term.
If you have a younger driver living in your home you can add her car insurance onto the existing family policy as an additional driver. With each additional driver under 26, and each car on your policy the rates increase again. According to Insurance.com, one teenage driver in your single car household will raise your monthly payments by up to 44 percent. If you own two cars you can expect to pay 58 percent more, and for three cars you will pay up to 62 percent over what a household with no younger drivers is paying. The reason for the increase on all cars is the potential that the younger driver may choose to borrow any of them at any time, bringing them all into a higher risk category.
It's possible to lower car insurance rates for teens and young adults. Driver training classes and defensive driver training programs typically reduce rates by around 10 to 15 percent. College students who maintain a certain GPA can be rewarded with lower rates, since they display responsible behavior that may also indicate responsibility in their driving style. Selecting coverage with a higher deductible can save on premiums, and taking a policy with liability only also lowers the rate. Each insurance company has its own discounts, so ask what they are and take advantage of as many as possible.
- CNN Money: Why Car Insurance Costs So Much
- Forbes: What Really Goes into Determining Your Insurance Rates?
- Insurance: Adding a Teen to My Car Insurance Policy Costs How Much?
- Geico: Cutting Costs on Teenager Car Insurance
- US News: Teen Drivers Dramatically Increase Insurance Premiums
- The New York Times: Young Drivers Most Likely to Pay Insurance Penalty
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