Fear Not the Teen Premium

Wondering why your teen driver is so expensive to insure? It’s pretty simple, really. Insurance companies calculate premiums based on assessed risk (i.e. the likelihood the insured will need to use their insurance). The higher the assessed risk, the higher your premium, and vice versa. Assessed risk depends somewhat on individual circumstances–the kind of car you have, for example, or your driving record–but it is mostly determined using statistics gathered annually comparing the average risk in a variety of groups. One of these groups is, you guessed it, teens. According to these statistics, young drivers are exponentially worse on the road than their adult counterparts. In fact, they are ten times more likely to be in an auto accident. More accidents means more payouts for the insurance company, so they keep the premiums high to balance out the money they estimate they will have to pay on behalf of their insureds.

Understandably, most teens feel powerless to change the cost of their auto insurance. You can’t change your age, right? While your age isn’t under your ┬ácontrol, your behavior is, and the experts at Fortune have some simple ways to lower that sky-high premium.

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1. Let the insurer track your driving

Many of the biggest insurance companies have instituted “telematic” programs, in which the insured driver keeps an electronic device that assesses how good a driver he/she is. You’ve probably heard of Progressive’s Snapshot program, which entails plugging a small device into the bottom of your steering column and transmits data about how fast you’re driving, how hard you hit the brakes, the time of the day you are on the road, etc. back to Progressive, where the data is used to determine your monthly premium. Today, companies like Allstate and State Farm have designed similar systems as apps and through onboard communication systems like OnStar to make them even less intrusive and more accessible. The savings through these telematic programs can often be up to 30%! Some users even report that they become more conscientious drivers when they know they are being monitored.

Here’s the caveat–in some cases, the insurer can also increase your premium based on reckless driving. This means that unless your teen is amazingly careful all the time (and few teens are), you’re probably better off using these devices when an adult driver is in the car, and certainly don’t lend your car out while the device is active. But heck, maybe your good driving will save you enough to balance out your young’un’s high premium.


2. Get the good student discount.

There are some auto insurance discounts that you get automatically–having a car with an anti-theft device, for example–and others that you have to ask for. The good student discount falls into the latter category. Ask your insurer or agent if they offer a good student discount, and you could save an average of 10% (and sometimes even more) on your teen’s auto insurance. Typically, the student must have at least a B average to qualify. Online driver safety programs and a safe driver contract signed by the young driver and his/her parent can also save you money, so be sure to find out about these, too!

Some companies also have a “resident student discount” for students attending college far from their home state, but you’ll have to ask for this too. It’s worth it though–you could slash your premium by up to 30%!

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3. Buy or keep used cars.

This one is actually pretty weird. Basically, if a teen gets into an accident in a used car, it’s a significantly less expensive loss than if the same thing happened in a new car, so a used car is cheaper to insure. Be warned, though–some people have questioned the claim that older cars are less expensive to insure by virtue of being older, pointing out that people generally purchase less coverage on a used car.

Strangely enough, a few companies will actually give discounts for newer cars, arguing that cars less than three years old have more advanced safety features and thus can prevent damage from an accident much better than in an old car. Even so, I doubt you want your teen driving around in a brand spanking new car, so let’s stick to the oldies.


4. Bump up your own liability insurance.

If your name is on your teen’s insurance policy and he/she drives your car, all of your assets, including the contents of your home, are fair game in a lawsuit. A basic auto insurance policy’s liability coverage is often pitiful compared to the value of your assets, meaning that a victim of an accident in which your child is involved can force you to pay for whatever the insurance company doesn’t cover. For $250-$300, you can get $1 million worth of coverage, and most medical bills don’t even amount to half of that. It may mean spending a bit extra, but increasing your personal liability can save you hundreds of thousands, and quite literally, the roof over your head.


What do you think? Would you try these tricks to get a better deal for your young driver? Have you had success (or failure) with any of them? Let us know!


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