Credit: Shutterstock photoOne of the biggest appeals of turning 16 is finally driving a car. Perhaps you've even saved up for years to buy one of your own. Did you account for the insurance though? On average an 18-year-old driver will pay $5,411 for a standard auto insurance policy annually. Luckily, with some prior knowledge you can avoid having to spend all that money on insurance as a young driver.
Staying on Your Parents Policy
Staying on your parents plan is one way to save money. Taking out your own policy, especially as a 16-year old, will be very expensive by lieu of you being a new driver, thus risky driver. With your parents on your policy, it tells the insurance company someone is willing to vouch for your risk. Make sure you understand however the risk your parents take by putting you on their policy. Any violation or accident will cause their rates to skyrocket.
Discounts
Auto insurance companies offer a lot of discounts that can save you a lot on your policy. One offered by State Farm, GEICO and Allstate is a “Good student” discount. If you average a B or a 3.0 in school and are enrolled full time in high school or college, then you can qualify for an up to 25% discount. We even found certain drivers could even get up to a 27% discount in Boulder, Colorado with State Farm. Another discount can be earned by taking a defensive driving course. If you’re in high school there’s a good chance your own school or one nearby offers drivers education. Combining the two discounts can remove over a third of your monthly bill. Unfortunately, not every state offers every type of discount so you will need to inquire with your company. For example, in North Carolina, State Farm, GEICO and Allstate does not have a good student discount.
Getting the Right Coverage
If you are on your parents' plan, it is likely inclusive and thus will give you a wide range of coverage without needing to pay extra as we mention above. If you need to get your own plan however, the best thing to do is to strike a balance. Figure out how much you are comfortable paying each month, without under-covering yourself. If you get into an accident that damages someone else's car or hurts someone else, your small coverage may not be enough to pay for everything, meaning you will need to pay out of pocket to make up the difference. That could end up being thousands of dollars. There needs to be a comfortable medium. First take a look at your state minimum. Some states have high minimums that may be enough to comfortably cover you, while also paying the lowest possible premium.
If your state minimums are too low to comfortably drive with, then you will need to further assess your situation. Ask yourself. Do you only drive your car a few times a week? How far do you drive? How valuable is your car? If you don't drive often or far, your policy limits could be lower, reflecting your smaller chance of getting into an accident. If your car is worth less than a couple thousand dollars as well, it won't be worth to pay for collision or comprehensive insurance. Within four years of schooling you'll end up paying more just on collision and comprehensive insurance premiums than what the car is worth. Besides, accidents which you are not deemed at fault are paid out by someone else's insurance anyway, meaning theres a good chance you would not even have to make a claim through your collision insurance.
Shop Around
The final thing you can do as a young driver is to shop around. There are tons of auto insurance companies. Most populous cities can have a market comprising of over eight companies. Odds are, one company will give you a good rate that won’t cause you to pinch your wallet every month. Larger companies, with a large number of written policies can write lower premiums for younger drivers because they can afford the risk. If you are diligent with your search you should easily find a policy under the $5,411 average for 18-year olds.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
