Kids, Cars & Cash
Focus on safety and fiscal sanity when your teenager takes the wheel.
By Mark Solheim, Senior Editor
From Kiplinger's Personal Finance magazine, September 2004
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When a teenager comes of age and gets a driver's license, your insurance company takes it as a license to jack up premiums so high it seems like highway robbery. Imagine the sticker shock -- not to mention the worries -- if you had four young drivers, each with his or her own car. David Hovis is reminded of the pain every six months when he pays the premiums for himself, his wife and their four offspring. Six cars. Six drivers. Semiannual cost: $3,676.
Hovis, senior planning manager for a sports-trading-card company, lives in Encinitas, near San Diego, and one car per capita is almost de rigueur in Southern California. Chelsey, 21, drives a 1996 BMW 328. Teresa, 19, has a 2000 Jetta GLX. Alan, 18, drives a 1987 BMW 325ci convertible, and his twin brother, James, has a 2001 BMW 330ci coupe. (Their mom, Christi, has a 1998 BMW 528i, and David drives a 2003 Volkswagen Eurovan.) Premiums for the kids' cars alone run $2,394, or nearly $4,800 a year.
It could be worse. For one thing, as a former Naval officer, David gets his insurance through USAA, the insurer for those with a connection to the military. Few insurers can beat USAA's rates. And David keeps the tab down by carrying no collision or comprehensive coverage on the older cars and by boosting the deductible to $1,000 on the newer ones.
It's no secret why insurance companies charge disproportionately high rates for teens. They are responsible for a disproportionate number of claims stemming from inexperience. Plus they may have a propensity to flout speed limits and to drive under the influence of alcohol and drugs, and they may be distracted by friends, cell phones or sound systems. A 16-year-old girl is three times more likely to have an accident than someone who is 25. A 16-year-old boy is five times more likely to have a wreck, says Gary Tolman, chief executive officer of Esurance.
As parents, you can do plenty to decrease the risk, protecting both your kids and your pocketbook. But reducing the cost starts with comparison shopping and making sure you get all the discounts you qualify for.
Trim the tab
Rates and discounts vary a lot. When InsWeb, an online insurance-quote service, shopped rates for a California couple who plan to add a 16-year-old son to their policy as an occasional driver (for either a late-model Honda Accord or a Toyota Camry), the average premium jumped 140%. For every $100 they paid before Junior got his license, they would now have to pony up $240. And that was the average; one insurer boosted premiums 250%.
Rates depend on a company's claims experience and whether it believes there are profits to be made from targeting families with teens. How the insurer sets its rates also influences how much you'll pay for a younger driver. For example, Progressive groups 16- to 18-year-olds and 19- to 20-year-olds together when figuring rates. On the other hand, Esurance "segments" teen drivers into different rate classes when they're 16, 16½, 17 and so on, so premiums tend to be higher for younger drivers.
The only way to find the best deal is to shop around. Start with your current insurer, but don't stop there. Check the largest companies, visit an online marketplace such as InsWeb.com, or shop with an independent agent. Insuring your cars with the same company that covers your house will probably earn you a break. And be sure you're getting all the other discounts you deserve. Those vary from state to state and from company to company. State Farm, for example, gives a good-student discount (typically at least 10%) if your child has at least a B average and a break if he completes its own driver's-education course. Progressive doesn't offer either of those breaks but does give a "minor child" discount for families with drivers under age 19.
You may also get a discount if your child has taken driver's ed. And when your student goes to college more than 100 miles away, your premiums could go down. Of course, rates stay lowest for teens with a clean driving record.
It's almost always cheaper to add a teen to your policy than it is to buy separate coverage because your child gets the benefit of your premium reductions, such as those for multiple policies and vehicles. Plus, insurers usually determine rates based on the combined records of all the drivers in your household.
The cheapest way to go is to add a teen as an occasional driver. You're probably stuck designating your child as the principal driver if he drives the car more than anyone else in the household. But check with your insurer. For example, you might be able to list him as an occasional driver while he has a provisional license.
To see how premiums can differ, we asked State Farm to price different versions of a policy for a family in suburban Indianapolis who want to add a 16-year-old son to their policy. He would drive a 1999 Honda Civic LX sedan with $500 deductibles for both collision and comprehensive coverage. He would have liability coverage of 100/300/50 (bodily-injury coverage of $100,000 per person and $300,000 per accident, and property-damage coverage of $50,000).
Assuming that the family has at least two cars and therefore qualifies for a multicar discount, semiannual premiums for the Civic would be $326--before the son starts to drive. If the son is assigned as an occasional driver of the car, premiums double, to $642. If he's listed as principal driver of the Civic, the rate jumps another 36%, to $871. (If the teenager owned the car himself, the six-month premium would be $935.) On an older car, dropping collision and comprehensive coverage can help keep premiums in check. The $871 premium falls to $473 without those coverages. You can also mitigate the pain of principal-driver premiums if you assign an older, cheaper-to-insure car to your teen.
Don't skimp on liability coverage. Get at least 100/300/50. In fact, adding a teen driver may be the impetus you need to get an umbrella-liability policy that adds an extra $1 million to your auto and homeowners liability protection.
Keep it safe
It's not all about money. You want to be sure that your child is driving the safest car possible. The box on page 74 spotlights ten good choices for teenage drivers. Also, you can help by giving your child more experience and limiting risky behavior, which ultimately will pay off in the lower premiums that come with a clean driving record.
"The best way to keep costs down is to practice loss control," says Bill Wilson, a Hendersonville, Tenn., insurance agent. In other words, make sure your teen knows what behavior is acceptable and what isn't. Wilson recommends using a written agreement, such as the one at www.parentingteendrivers.com, which you can customize. Among the important tenets: no driving for at least 24 hours after alcohol consumption; no thrill-seeking behavior behind the wheel; a limit on the number of passengers; and a limit on cell-phone and stereo use. Violating the contract leads to suspension of driving privileges.
Before she gets her license, your teen should have the combination of emotional maturity and driving experience that tends to prevent accidents in the first place. At least 36 states and the District of Columbia help out in the form of graduated licensing systems, in which a supervised learner's period is followed by an intermediate license (which may restrict unsupervised driving to, say, daytime hours or limit the number of passengers).
Beyond distractions and risky driving, too many teens simply don't have the skills they need to handle difficult or emergency situations. "A silent problem is that kids panic, which doesn't show up on police reports," says Jeanne Salvatore, of the Insurance Information Institute. "Some kids who have crashes were not ready to be driving by themselves." David Hovis urged his younger daughter, Teresa, to wait until she was 18 to get her license. "Let me put it this way," he says. "Some kids aren't ready at 16. She didn't have a compelling need to drive."
Parents play a key role in training their kids, especially given the once-over-lightly approach in most driver's-ed courses. When he gets his learner's permit, take your new driver out at night, in the rain, in snow. If possible, go to a big, empty parking lot when it's wet and show him how to steer out of a skid and to brake hard without losing control. Not up for that? See the story on our Web site that lists courses that will do it for you.
--Reporter: Joan Goldwasser
RIGHTEOUS RIDES
Ten Cars for Your Teens and Your Budget
The best car for teens? They're not going to like the answer: a big, dull, slightly beaten-up sedan. Got an aging Ford Taurus parked in your driveway? Perfect.
Of course, you have to persuade your status-conscious teen to drive it, and that may not be easy. The ten cars below include a few slightly hipper models, just in case the Taurus or Buick LeSabre get the thumbs down. All cost between $10,000 and $18,000 (actual transaction prices come from Edmunds.com). The cars are new or slightly used because newer models are more reliable and tend to have better safety features. Plus, each has top crash-test scores from the National Highway Traffic Safety Administration or the Insurance Institute for Highway Safety, or both. Finally, the cars on this list won't cost a fortune to insure, according to InsWeb, which supplied average quotes for each, based on a California couple adding a 16-year-old son to their policy.
We nixed performance sedans and sports cars, which not only cost more but also beg inexperienced, impressionable drivers to test their limits. And there are no SUVs on the list because they're more prone to rollovers than sedans. We also left off three popular choices among teens -- the Ford Focus, Honda Civic and Mini Cooper -- because they are more costly to insure. Adding a teen as an occasional driver of a 2004 Mini, for example, would bump up the family's premium by $4,030 a year.
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