How Much Does Your Car Insurance Increase When You Add A Teenager To Your Policy?

You have probably heard the phrase “kids are expensive“. That phrase takes on a whole new meaning when you find out how much your car insurance is going to increase when you add your teenage child to your policy.  In this article I’m going to share with you:

1. How much you can expect your car insurance premiums to increase when a teenager is added

2. What does the insurance company look at when determining the premium?

3. Are car insurance premiums higher for males or females?

4. Ways to reduce the cost

5. How much does the cost go up if they get into a car accident?

6. When your child turns 18, should you move them to their own policy?

7. Coverage mistakes

Ruger Personal Note:  I have an 18 year old daughter that we added to our auto policy about a year ago. The two main things that I have learned so far are:

• The cost increase was higher than I expected

• New drivers hit stuff with their cars

By the time my oldest daughter was 18, she had already hit a deer, a post, and my car which was parked in our driveway. Yea, that last one was a rough day because I had to fix both cars.  I’m writing this article because there are strategies that you can implement to reduce the cost of the insurance for your children and it’s also important to understand the liability that you take on by having a new driver on your policy.

How Much Does Your Car Insurance Increase?

 The million dollar question: How much is your car insurance premium going to increase once you add your child to the policy?

Like so many other things in life, there is not a 100% straight answer because it depends on a number of variables such as:

• Credit Score of the parents

• Driving record of the parents

• Will they have their own car or sharing a car with their parents?

• What type of car will they be driving?

• What state do you live in?

• Coverage limits of the policy

• The Insurance company issuing the policy

But let me give you a base case scenario to work with before we get into discussing all of the variables that factor into the premium calculation.   In this example we have:

• A 16 year old driver that is being added to their parent’s auto policy

• Parents have a good credit score

• Parents both have good driving records

• Your child will have their own 2016 Honda Civic to drive

The annual INCREASE in your auto insurance premium may be between $1,000 - $1,500.  This is more of a best case scenario.  If the parents have poor credit scores or poor driving records, the premium could increase by $3,000+ per year in some cases.  To get a better idea of where you might fall within this wide spectrum, let’s look at the variables that influence the cost of auto insurance when a new driver is added.

Credit Score of the Parent

 I was surprised to learn that the credit score of the parents is one of the largest factors that many insurance companies use to determine the amount of the premium increase.   They have apparently identified a trend that parents that are financially responsible tend to have children that are less likely to get in car accidents.  Even though this will not be true for all families, insurance companies have accumulated a lot of data over a long period to reach these conclusions.   

This brings us to our first strategy for reducing the cost of the car insurance for your children.  If the parents are able to improve their credit score before adding the child to their auto policy, it could reduce the premium increase.  There are many ways to do accomplish this but it is beyond the scope of this article. However, here is a good article from Nerd Wallet that can help.

The Parents Driving Record

 This one is pretty self-explanatory. If the parents have a lot of marks on their driving records such as multiple accidents or speeding tickets, it could make the premium increase higher when you go to add your child to the policy.  Again, the insurance company must have made a connection between the driving behavior of the parents and the driving behavior of their children. 

 Are car insurance premiums higher for males or females?

 The answer to this one is “it depends on what insurance company you go with”.  Some insurance companies do charge more depending on whether you are adding a son or a daughter to your policy, others do not. How do you know which insurance companies are gender bias?  You can either ask the insurance company directly if it influences the premium or you engage the services of an independent insurance agency that knows the underwriting criteria of each insurance company. 

Will The New Driver Have Their Own Car?

Another big factor in the insurance cost will be what vehicle your teenager will be driving.  If you are adding a new driver to your policy and adding an additional car to your policy as well, the premium increase will obviously be larger than if you are just adding a new driver who will be driving the current cars listed on your policy.  In the Honda Civic example above, adding the car and the new driver increased the annual premium by $1,000 - $1,500.  If you are adding the new driver to your current policy but they will be co-driving a car with you, the premium may only increase a few hundred dollars but it depends on the value of the cars that you drive.

A Driver Assigned To Each Car

 I asked about a work around here.  Let’s say there are 2 parents and 1 child.  If you add a third car to your policy for the new driver, most insurance carriers do not allow you to say that two of the cars belong to Parent A, the third car to Parent B, and the child shares each of the three cars.  If there are 3 cars and 3 drivers covered by the policy, the insurance company typically wants to assign a “primary driver” to each vehicle listed on the policy. 

NOTE:  Be careful when you add new drivers to your policy.   Make sure you provide them with clear direction as to who the primary driver is for each vehicle. If you buy your child a car and you drive a more expensive car than your child, you don’t want the insurance company assigning your child as the primary driver to your car which could result in a larger increase in the annual premium.  It’s worth taking the time to review your auto policy after any changes have been made.

Not telling the insurance company about the new driver

 Unfortunately, some families may decide not to tell their insurance company about the new driver in the family. Not a good idea. This opens you up to a whole host of liability issues. While car insurance does “follow the car”, meaning whoever is driving your car will most likely be covered in some fashion by your auto policy, however, if there is a claim and the insurance company finds out that you intentionally did not add the new driver to your policy, they may pay the claim, but they may also drop your coverage after that. 

Ways To Reduce The Cost

 There are a number of ways that you may be able to reduce the cost of the insurance for your teenager:

• Defensive Driving Course

• Good Student Discount

• Student Away from Home Discount

• Removing collision coverage on an older car

Notice I did not mention anything about Drivers Education.  I was surprised to find out that in New York, more insurance carriers no longer offer a discount for the child completing a Drivers Ed course.  Some carriers offer the “Good Student Discount” which provides a small discount for students that maintain over a certain GPA.  The “Student Away From Home” discount is for children that go away to college, they are not allowed to bring their cars, but they will be driving when they come home for breaks. With this discount, the insurance company is recognizing that they will be driving less in that situation.  Having your child complete a defensive driving course can decrease the premium and many of these courses are now available online.  

Removing collision coverage on an older car can also reduce the cost of the coverage.  If your child is driving a car that is worth $5,000 and you feel like you are in a position financially to replace that car if you needed to, then you may elect to waive collision coverage on the car which can lower the premium.  For vehicles of higher value, this is a larger risk, and if there is a car loan against the car, most lenders will require you to maintain collision coverage until the loan is paid off.

Moving Your Child To Their Own Car Insurance Policy

One of the questions I asked the insurance agent was:

“When does it make sense for the child to obtain their own car insurance policy as opposed to being covered under their parent’s policy?”

The general rule of thumb is if your children are still living at home, in many cases it will make sense, from a cost standpoint, to keep them covered under your policy. If you want your child to be responsible for the car insurance payment, you can just charge them for their share of the coverage.  

One of the largest discounts that most insurance carriers offer is a “multi vehicle discount” while could reduce the annual cost of the car insurance by around 25% for some carriers. So,  let’s say that the Honda Civic for your child costs $1,000 per year under your policy, if your child goes and obtains their own insurance policy, they will lose the multi car discount that you are receiving under your policy, and it could increase their cost by 25%. 

Also, remember that I mentioned before that the parents credit score can be a big factor in determining the amount of the auto premium for their child’s coverage.  Most young adults have little to no credit history so if they go to obtain their own insurance policy, it could increase the cost.  Previously, they may have been benefiting from their parent’s strong credit scores and driving history which leads me to my next planning tip.  At some point, your child will leave home, and they will obtain their own car insurance policy.  As a parent, you can help them but encourage them to begin establishing some credit history early on so when they go to obtain their first car insurance policy, they have a good credit score, and it could reduce that annual expense.

How Much Does The Cost Increase If They Get Into A Car Accident?

 I’ll go back to my original point that “new drivers hit stuff”.  There is a high likelihood that the new driver in your family is going to hit a mailbox, a garbage can backing out of the driveway, another car, or one of their friends could hit their car in a high school parking lot.   When these life events happen, the question becomes, how much are your car insurance premiums going to increase?  Does $1,000 go to $3,000 per year?  The answer unfortunately is it depends on what happened.  The size of the insurance claim can influence the amount of the premium increase. 

With any damage to a vehicle, you have three options:

1. Don’t fix it

2. Pay to fix it out of pocket

3. Submit an insurance claim and fix it

The first question to answer in this analysis is “what is your deductible?”  It’s common for car insurance policies to have deductibles which means when you submit a claim, you must pay a certain amount out of pocket before the insurance company picks up the rest; a $500 deductible is common. So, if your child hits something, does some minor damage, and the total cost to fix it is $600, if your deductible is already $500, submitting an insurance claim will only pay $100, and you run the risk of your annual insurance premiums increasing.  It may be better to just pay the $600 out of pocket instead of submitting the insurance claim. 

If there is more significant damage like $3,000+, it may make sense to just submit the claim, pay the deductible, and let the insurance company pay for the rest.  My friend that is in the insurance industry will remind people, “This is why you have insurance….use it.”  

It’s a more difficult decision when the dollar amount of the fix is somewhere in the middle of these examples. If the car has $1,000 of damage but you have a $500 deductible, what should you do?  This is where having an independent insurance broker can help. You can call your broker, explain the situation, and they may be able to provide you with an estimate of how much your insurance premium will increase each year if you submit the claim, then you can make an informed decision based on that information.

Know Your Coverage

 All car insurance policies are not the same!!  While, of course, everyone wants their car insurance premium as low as possible, do not make the mistake of just blindly running to the lowest cost option.  Lower cost can mean lower coverage.  The day that your child gets into a car accident is going to be a very bad day.  That day will get even worse if your child hits a $75,000 Tesla and you find out that your auto policy only covers $25,000 of property damage so you are on the hook for the other $50,000!!!  Make sure you are not being sold a watered-down car insurance policy that will open you up to gaps in coverage. You may have saved $400 per year on the insurance premium but when an accident happens, you could be out of pocket $10,000+.

Two more points to make about knowing your coverage:

1. No one ever gets up in the morning and says “I’m going to get into a car accident today”

2. New drivers hit stuff

Thank You to HMS Agency 

 I want to send out a special thank you to Steve Mather, a partner at HMS Agency, for helping me collect the information that I needed to write this article.  As a financial planner, I enjoy helping people to save money, but I know very little about the inner workings of car insurance which is why I rely on experts like Steve and his team.

This information is for educational purposes only. For information specific to your insurance needs, please contact a licensed insurance agent.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.