Now that you are old enough to drive, your parents have undoubtedly talked to you about the dangers of driving, stressed the importance of seat belts, and at some point have raised their voices during the course of your driving instruction.
However, they have probably mentioned very little to you about insurance, aside from the fact that they cannot afford to add you to the policy. “It is too expensive,” they say. “If you want to drive, you will have to pay the premium.”
We will discuss some of the reasons for your parents’ concerns, cost patterns, auto damageability comparisons, actual tables, and more. Being in the insurance business, we have access to resource materials that many people do not.
Here are some of the basic details on ratemaking. Insurance is a mechanism to “spread the risk” among the population. See this formula:
Total Dollar Amount of All ClaimsTotal Number of Policyholders = Premiums
Consequently, accidents, claims, etc, raise claims. Large lawsuits can raise everyone’s premiums.
New Drivers Are A Serious Risk to Insurance Companies
Though they may know you personally, as a new driver in general, you are a serious risk to their company. Insurers are “numbers people” who use formulas to analyze miles driven, average damage costs, and so forth. Ultimately, these result in premiums that are not unfairly discriminatory.
Statistics show that out of the total driving population, those drivers under 25 years of age total 14%, but account for 27% of all accidents, and 26% of auto fatalities. This is disproportionate. The bottm line is young drivers have more than their share of claims, resulting in higher premiums for youthful drivers. Premium Discounts for Driver Training and Good Grades
You will start out at higher premiums but can get a discount two ways. First, you can receive the good student discount with a grade point average of B or higher, which will save more premium than driver training. Some insurance companies will let you have BOTH, offering something such as 10% + 5% = 15% off.
Accidents Affect Insurance for the Entire Family
If you have an accident that is your fault, it affects the entire family. Most insurance companies will raise the rates 40% for one fault accident, 90% for two fault accidents, and cancel on the third. This actually cancels the family. It was not always this way. An attorney successfully sued an insurance company with named driver exclusion; therefore, the entire family now suffers.
Tickets Can Jeopardize Insurance Coverage
It may not be fair, but young drivers are more likely to get a ticket for a minor violation than their parents are. Cops look harder at young drivers. If you get two or more tickets, your insurance policy may be cancelled. Similar to accidents, some insurance companies charge additional premiums for tickets.
DWI Citation = Insurance Cancellation
Never drink and drive. The result of a DWI is an immediate cancellation. Non-standard, high-risk insurance premiums of low limit liability coverage only cost $4,500 per year. Like car accidents, a DWI can affect your family’s insurance.
Money Saving Ideas for New Drivers
Idea #1: Insurance is very expensive. If possible, do not buy a car right away when you turn sixteen. A person with their own car and less than three years of driving experience will be charged as an “inexperience point,” exactly like the one detailed in “Accidents.”
Idea #2: If you cannot live without your car, we suggest purchasing an older used (but reliable) vehicle. However, do not purchase physical damage insurance (comprehensive and collision). Liability insurance is required, but physical damage is optional. In addition to liability, premiums to insure the car itself will run between $600 and $1,400 per year, depending on the value and damageability of the car.
Idea #3: Contact your insurance agent before buying the car. There is a huge difference in premiums from one car to the next. Total cost of the car is only part of the reason. Damageability, crash results, parts availability, and ease of repair come into play as well. Each car has a specific symbol and the higher the symbol, the higher the premium.
New cars have beneficial accessories like antilock breaks, air bags, and alarm systems that result in premium savings. Make sure to make your parents and your insurance agents aware of this to ensure the greatest savings for you and your family.
Idea #4: Take Driver’s Education, and take it seriously. Take your grades in school seriously, too. Better students have fewer accidents, and a “B” average will give you a “good student discount” on insurance premiums. You can keep these discounts all the way through college.
Idea #5: Get high deductibles. The higher the deductible, the lower the premiums will be. If you save $250 per year in premiums for a $500 deductible and have an accident within the first two years, you break even. The third year, you will be ahead of the insurance company. Those savings will accumulate.