For many teenagers, the cost of buying car insurance on their own may be more than their summer jobs can handle. That’s why many parents put teenagers on the family insurance policy, where the expense is much less than if a teenager bought his or her own insurance policy.
At some point, however, teenagers become adults and their insurance risk level declines. Consequently, their insurance premium, were they to buy their own policy, also reduces as they move from adolescence to adulthood. Is this the time to advise children to take over responsibility and move off their parents’ car insurance policy?
It depends. There are several options open to the family - for the child to buy his or her own car insurance, for parents to continue to insure children and pay the premiums, or for parents to continue to insure children and have them cover the cost. Which option to choose will be different based on each family’s financial considerations. You might be wondering; How long can a child stay on their parents’ auto insurance? The fact is, parents can keep children on the family auto insurance policy for as long as they want, but it might not always make financial sense.
In this regard, there are important factors to consider. “If the kids remain on the policy once they are on their own and adults, you as a parent need to understand that you are subjecting yourself to uncertain responsibilities and liabilities associated with these drivers,” says Robert Hartwig, Clinical Associate Professor and Co-Director, Center for Risk and Uncertainty Management, at the University of South Carolina in Columbia.
A youthful driver - even one in his or her early 20s - is a riskier driver. “When you remove a youthful driver from the family policy, you reduce the probability of a claim for property damage, first-party and third-party injuries, and other liabilities that may result from the accident,” Hartwig explains. “Once the youthful driver is taken off the insurance, the premium for the family policy will decline considerably, as will the premium for the parent’s excess liability or umbrella policy offering added protections on top of the car insurance.”
So there are sound financial reasons for removing your kids from the family’s automobile insurance policy. Knowing the right age to do it is the challenge.
Different rates for girls and boys
Teens on a family’s car insurance policy will be rated higher and differently, based on their gender, than older adults. “If two parents have boy-and-girl fraternal twins, each getting their driver’s license at the same time, the girl will initially receive a better rate than the boy, based on statistical data indicating a lower risk of accidents involving teenage girls,” says Kevin Lynch, assistant professor of insurance at The American College of Financial Services in Bryn Mawr, Pennsylvania.
Here’s why: According to the Insurance Institute for Highway Safety, 9.2 teenage male drivers die in automobile accidents for every 100 million vehicle miles, nearly double the death rate of 5.3 for female teenagers. This explains why insuring a teenage son typically costs 25% more than insuring a teenage daughter.
Over time, as both genders build their driving records, other insurance underwriting factors come into play. “When the daughter turns 21, assuming she has a clean driving record, she will be treated for rate purposes as an adult and given standard adult rates,” Lynch says. However, boys may not have standard adult rates until they reach age 25 if they have a clean driving record. Regardless of gender, teaching your teens safe driving is of the utmost importance, both for insurance rates and their safety. Here are some teen driving safety tips to help you get started.
There are other nuances to consider. According to Lynch, a child living at home or going away to college or graduate school will be allowed to remain on their parents auto policy with no additional fees until age 24, unless he or she has purchased a separate insurance policy.
Clarifying the decision
So when should a parent suggest to a son or daughter that the time has come for them to consider purchasing their own insurance policy? Obviously, this decision depends on many factors, including the child’s driving record, maturity and financial situation, in addition to the parents’ plans for their financial future.
In some cases, such as when a young driver moves to a state that has lower insurance premiums, this decision becomes easier. “My son moved to Texas after college, where car insurance is a lot cheaper than it is in New York,” says Hartwig. “He had a job and could afford his own insurance now.”
Reconsider at graduation
Many parents generally opt to retain teens on the family’s automobile insurance policy until they graduate from college, assuming they find employment and live away from home. At this point they should be paying for their own housing, food and credit card bills, building up a positive credit rating. Automobile insurers consider an applicant’s credit score among several other factors in their underwriting. Assuming a clean driving record and a solid credit history, there’s a good chance of a competitive premium. “By developing a better credit score, most everyone can secure auto insurance at a lower cost,” Hartwig says.
Some parents may decide to continue keeping their children on the policy for a period after their graduation. But if the child can afford paying for his or her own auto insurance, this is the time for the family to sit down and talk about it.
Ask an insurance agent
Hartwig further advises including an insurance agent in the conversation. “An agent has the risk and insurance expertise to assist with a talk on the different types of insurance coverages that exist in the market and the importance in shopping for insurance, comparing and contrasting the terms, conditions and costs of different policies,” he says.
Whether you decide it’s time for your child to get their own policy or keep them on yours, Nationwide offers reliable auto insurance coverage with plenty of discounts. Get a free quote today.