Ask Kim
8 Ways to Cut Insurance Costs for Teen Drivers
You can prevent your auto premiums from skyrocketing.
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
February 1, 2010
My 16-year-old son is about to get his license, and I’m afraid of what that might do to our auto-insurance rates. How can we lower insurance costs?
You’re right to be worried -- your auto-insurance premiums are likely to skyrocket when your teenage son starts driving. But a few key moves can help you cut costs significantly.
1. Raise your comprehensive and collision deductibles to at least $1,000, which lowers your premiums and prevents you from filing small claims that could jeopardize a claims-free discount. Add some more money to your emergency fund so you’ll have the cash to pay the deductible if anyone in your family does have an accident.
2. Drop collision and comprehensive coverage entirely on older cars that are worth little more than the deductible. You may be paying more in premiums than you could ever get back from the insurer, even if the car is totaled. Look up your car’s value on Kelley Blue Book .
3. Get a safe car. Having your child drive a safe car will help you sleep easier and keep your auto-insurance rates under control, too. Check safety ratings at the Insurance Institute for Highway Safety.
4. Encourage your kids to get good grades. Most insurers offer a big discount for young drivers who maintain at least a B average in high school or college. College kids generally need to take at least 12 credits to qualify for the discount, says Trisha Mujadin, an independent insurance agent with NRG, a Seattle insurance agency.
5. Tell your insurer if your child goes away to college. If your child goes to school more than 100 miles away and doesn’t take a car, you can usually get a big break on your premiums but still have coverage when he or she comes home for vacation.
6. Ask about other discounts for teenage drivers. Some insurers offer discounts for driver-safety programs, cutting costs if the kids take a special class, watch a DVD, or read a driver-safety book and take a test. Ask your insurer what your kid needs to do to qualify.
7. Make the most of multipolicy discounts. You’ll usually get a break on your auto insurance and your homeowners insurance if you keep both policies with the same company. You may get an additional discount if you include an umbrella policy, which provides extra liability coverage beyond your auto-insurance limits and can be particularly valuable when you have a teenage driver.
8. Shop around. Some insurers offer much better deals than others for teenage drivers, so it’s important to compare costs. The insurance company that offered the best rate for you and your spouse may have some of the highest rates when you add a teenage boy to the policy (and it’s almost always better to add the child to your policy rather than have him get his own policy). “One company we work with is really great with young drivers and another is horrible,” says Mujadin.
You can get price quotes from several insurance companies at www.insurancerates.com (a new site by InsWeb.com) or get personalized service from an independent insurance agent who works with many companies (you can find a local independent agent at www.iiaba.org). You may not want to switch from a longtime insurer just to save a few dollars, however, because your current company may be less likely to raise your rate or drop you if your child has an accident, says Mujadin. “If you stay with the company where you’ve been, there’s some value to that -- there’s more room for forgiveness.” Also keep in mind that if you’ve been getting a multipolicy discount, your homeowners-insurance rate might rise if you take your auto-insurance business elsewhere.
One thing you don’t want to do in an attempt to reduce your premiums is skimp on liability coverage. Mujadin recommends liability limits of at least $250,000 per person, $500,000 per accident and $100,000 for property damage (or a policy with a “combined single limit” of $500,000, when available, which doesn’t limit the coverage to $250,000 per person involved in the accident). Young drivers are more likely to have accidents, and lowering your liability limits could leave you on the hook for tens of thousands of dollars in expenses if your child does hit another car or injure someone.
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Reader Comments (7)
Posted by: Peace of Mind at 02/01/2010 03:32:06 PM
Once my teens started to drive, I purchased some peace-of-mind by spending three hundred dollars per year for a two-million dollar umbrella policy which protects our assets in case of a serious accident. In addition, I have found the discount for college students who live more than 100 miles away and leave their car at home to be quite small. Consider covering the car with limited coverage (i.e. fire and theft) when they are away and not allow the car to be driven. When they come home for long breaks (i.e. Christmas and summer) I change the policy back to full coverage. This saves me $700 per year.
Posted by: Cindy H at 02/01/2010 05:34:47 PM
My ex husband and I sold our house last year after 7 yrs. He was residing in the home. We got $16,000 after all the fees and so on. I owed him money so signed the check over to him. My question is am I responsible for taxes on money I never received? He said he will claim the whole amount, so will I be covered?
Posted by: Trudy at 02/01/2010 11:40:02 PM
We've owned our own home now for 18 years, myself & my husband. 15 years ago, we purchased a condo with our 2 names on title as well as my daughters to help with her credit. We rented to her at a loss for a few years while she saved to be able to buy us out. Then, we had our names removed by a lawyer. We are retiring this year, will sell our primary residence. Will we have to reveal that we helped purchase a condo for daughter many years ago? She basically paid us back the downpayment plus the difference in rent so we are out no money at all. Are we exxempt fromcapital gains, since it is our principal residence and has been for almost 20 years.
Posted by: Gary Davis at 02/04/2010 08:33:17 PM
Why do you and other financial writers continue to recommend stocks and mutual funds? Someone who invested $10,000 in an index fund ten years ago would have nothing at all to show for it. Stocks long ago lost their attraction for me. Why do you and financial writers continue to prop up a dead horse? Are you being underwritten by the mutual fund industry?
Posted by: Gary Davis at 02/04/2010 08:43:28 PM
...Rather than invest in US stocks, one would be smarter to bury his cash in the backyard. Why do financial writers keep up the charade?
Posted by: Gary Davis at 02/04/2010 08:49:38 PM
Why do you financial writers pretend that there's money to be made investing in stocks? Charts of the Standard and Poors 500 over the past ten years show that shows it's a fools errand to invest in US stocks.
Posted by: Angie at 03/02/2010 01:43:23 PM
I have a daughter that has been driving with a permit since July of last year. I added her to my auto policy which of course went sky high. I was paying about $260 every 6 mths before whereas now its $1,100 every 6 months. I am a single parent, minimum income, I do not receive any child support or welfare. I almost went under during this last 6 months...got 4 months behind on my house payments..ect. I Cannot renew my policy when it is due with her listed as a driver. I cannot loose my house for this. I guess she will have to go back to riding to school with my neighbor but will my insurance co. let me drop her from the policy? What are the reprecussions?