Auto Insurance for Teenagers

Teens and Car Insurance
When teenagers first begin to drive, they quickly discover that auto insurance is and will continue to be a major factor in their driving lives.

First, they discover that it is required by state laws. In most states you cannot buy a car, get tags, or drive a car without at least a minimum level of auto insurance.

Second, they discover that insurance is expensive, especially for teenagers, and especially for male teenagers under 18 years old.

Third, teens often don't understand why insurance is important and why it is needed, and why it is smart to have it.


Why do I need insurance?
Teens often question the need for insurance, especially when it is so expensive — and they don't expect to ever be an accident anyway. Let's ask this question a slightly different way. Under what conditions would you not need auto insurance?

If you were financially wealthy and didn't care about the risk of losing a substantial portion of your wealth, you could self-insure. That is, you would use your own money to pay for damage repairs, a replacement vehicle if your current vehicle is stolen or destroyed, towing and storage charges, rental car charges, medical bills associated with an accident, lawsuits by other parties when you are at fault in an accident that causes damages, injuries, or death, as well as attorney fees, and property damages.

However, those who might be able to self-insure don't for two reasons. First, the cost of auto insurance is relatively small compared to the potential financial losses associated with self-insurance. Why risk losing thousands or millions of dollars in an at-fault lawsuit? Second, states have laws requiring liability insurance as a way of proving financial responsibility. Although a bank full of cash might seem to accomplish the same thing, most state laws don't see it that way. State laws vary, so car insurance in New Jersey is not the same as in California.

Another reason for having auto insurance for those who buy with a loan or lease is that bank and finance companies insist on it. In fact, most require "full coverage" insurance, which exceeds minimum state law requirements. They want to protect their investment during the time of the loan or lease. If the vehicle is destroyed or stolen while they still have money invested, they want to be sure they are paid first.

In summary, you need car insurance to protect you, protect your finances, protect your family, protect your finance company, and protect other parties and property for which you might be responsible. Insurance is all about protection.

Types of insurance
An auto insurance policy might include one or more of the following types of coverage:
Liability - Protection from risks associated with property damage and personal injury to others. Legal actions against at-fault drivers is becoming more common and more expensive. Multi-million dollar legal settlements are not unusual. Without insurance, a single accident could easily ruin an unfortunate family's life. For this reason, liability coverage is the most important part of such a policy. Liability insurance is required by law in most states.
Comprehensive - Protection from the cost of non-collision damages, vandalism, theft, weather-related damage, or natural disasters. Comprehensive coverage typically pays for the cost of repairs, or in the case that the vehicle is totally destroyed or stolen, the cost of a replacement vehicle - at "cash value" of the old vehicle. A deductible lessens the amount you are paid.
Collision - Protection from the cost of repairing damages to your own vehicle. A deductible lessens the amount you are paid, but also reduces premium cost.. If the cost of repairs exceeds about 75% of the value of the vehicle, the insurance company may decide to "total" the vehicle and pay fair-market replacement cost.
Medical - Pays medical costs to you or other parties for accidental injuries associated with your automobile. There are limits specified in your policy regarding maximum amounts paid for each incident.
Uninsured Motorist - Protection from costs associated with an accident caused by another driver with insufficient liability coverage - or no liability coverage.
Towing and Labor - Pays cost of towing and storing your damaged or disabled vehicle. Maximums usually apply.
Rental Reimbursement - Pays cost of renting a replacement vehicle after an accident.
Gap Coverage - Pays the difference between the amount owed on a loan or lease and the "cash value" paid by your insurance company in case of theft, fire, or accident. A gap waiver or gap insurance is usually provided with most leases, but not loans. Some auto insurance companies offer it and some do not. If you are going to be "upside down" on your loan, it's good coverage to have.


How much coverage do you need?
Many drivers view auto insurance as a necessary evil and buy as little coverage as they can get by with to minimize costs. State laws may dictate what and how much liability coverage is required, and whether no-fault coverage is required. If you buy with a loan or lease, the finance company may dictate minimum coverage requirements. They may even tell you the maximum deductible you can choose.

Beyond the requirements of your state laws or finance company, you have some ability to determine the kind of coverage you want, how much, what deductible, and what add-ons you want. Generally, the more coverage you have, the better you are protected.

For example, you can add more liability coverage, which can be a smart thing to do in these days of multi-million dollar legal settlements, especially when medical costs are involved. Many policies only cover $50,000 or less. If your auto insurance policy doesn't cover the full cost of a large settlement, you are personally responsible for the remainder.

You can also adjust your deductible amount, within limits. If you have sufficient cash available in case of an accident, you can set a high deductible to reduce your premium cost. However, many people who set high deductibles really can't afford to pay but bet on the chance they'll never have to. Not a good move.

Dropping collision and comprehensive coverage is another opportunity to save money. You should only do it, however, if you can afford to buy a replacement vehicle or pay for repairs from your own pocket. As mentioned previously, your loan or lease company may require this coverage even though you feel you don't want it.

Many insurance companies now look at your credit score and offer lower rates to people with high scores - 700 and above. You should know your FICO® credit score before you begin shopping for insurance.


Whose policy is it anyway?
Until a teen becomes 18 years old, they cannot buy insurance on their own. Therefore, most teens are simply added to their parents' policy, which is less expensive than a separate policy anyway. Some teens believe that they can simply not inform the parents' insurance company and avoid the high cost. Not very smart. It might work until the first time the teen is involved in an accident. At that juncture, the insurance company can and will declare no responsibility to cover the costs or lawsuits associated with that accident — and will likely cancel the parents' policy.

How much does auto insurance cost for a teenager?
There is no simple answer to that question. It depends on the type of car (see Cheapest Cars to Insure), where the car is driven, how many miles it is driven, for what purpose it is driven, and what discounts apply. Furthermore, insurance companies are regulated by state laws and rates can differ widely across state lines, even for the same insurance company. In some cases, a teenager may pay as little as $500 a year while in other cases can pay $3000 or more.

Get rate quotes
If you are buying a new policy or adding a teenager to an existing policy, the Internet makes it easy to shop for the best rates. Most people are already paying too much for their auto insurance. Companies frequently adjust rates such that no one company stays in the low cost leader slot very long. Unless you get new quotes every year, you never know that you might be able to get better rates from a different auto insurance company. It's easy to get free rate quotes online.

We recommend NetQuote to get a free insurance quote. It's fast and easy, and they work with multiple companies to get you the lowest rates and best coverage. NetQuote is the nation's oldest insurance broker company (see CBS News with comment). They can get the best rates by shopping your requirements to Allstate, Progressive, AIGdirect, Farmers, and other major insurers. Since these companies are competing with each other for your business, rates are as low as you'll find anywhere.