Getting your driver’s license is a teenager’s first taste of independence. It may seem like the natural next step to purchase your own independent car insurance policy. But until you turn 25, your rates might be unattainably high. Don’t panic just yet, it’s time for you to learn about the perks of staying on your parents’ car insurance policy and I will go over the negative effects this can have as well. While living with family members, it is okay for you to be a part of their family plan but I recommend against it in most instances. To help you better understand the impact on the long term pricing you will pay, which is often something most people don't think about, please see both the Pros and Cons for more information. Let's get into the Pro's first.
PRO's
• Grandfathered family discounts. Do you have to be on your parents’ car insurance? No, you can have your own policy even as a new driver. You'll likely save money by being on their plan because you'll benefit from the Multi Car discounts and Multi Line Bundle discounts your parents are likely getting. but you need to make absolutely certain that you are listed as a "Named Driver/Operator" to have coverage extended to you, you are not automatically covered by most policies, don't make the assumption that you are. Call your agent and ask.
• No age limit. You can stay on your parents’ car insurance policy no matter how old you are; there is no age limit.
• Save money NOW. For younger drivers, the average cost of car insurance is $691 per month or $8,293 per year. By comparison, the average American driver spends only $84 per month or $1,009 annually. Adding yourself onto your parents policy will likely get you pricing somewhere in the $200-$300 per month range depending on many factors such as the value of your car, year make and model of the car, your driving record, etc.
CON's
• Not establishing your own insurance rating score. When adding yourself to a family plan, you are foregoing establishing an insurance record of your own. Insurance companies use Insurance Consumer Rating Scores ( see our article explaining what this is) to figure a rate for insurance premiums. Adding yourself to a family plan will only use the primary policy holder's score, sometimes including the second named policy holder's score, to figure your rate. The rate is not actually "your rate" it is that of your parents with an added driver to their household.
• Parents held accountable for your driving activity & this affects the overall family rates. Long gone are the days that "not at fault" accidents don't affect your price. I was an agent during the time that this was the industry standard and it was a beautiful thing, unfortunately, these days insurers consider the overall claim history to determine your pricing including glass claims, towing, and tickets or accidents going back 3-5 years. Something you do "wrong", can affect not just your own rates but also the overall family plan. Your family can even be cancelled / dropped from the insurance company if you have too many incidents.
• Unnecessary increased coverages. Oftentimes parents add their kids on to their own family plan without considering that their children likely don't need as much coverage as they do. Insurance is about protecting your assets. As a young adult you likely don't own properties and other assets that your parents own. Your parents insurance should be structured to protect all of their assets. Your insurance should be structured to protect your assets. If you don't own anything, you could likely buy minimal insurance in comparison to your parents needing to carry $500,000 of coverage, or $250,000, or another limit of liability unrelated to your needs.
• Possible Increased pricing. More coverage = more premium. Most insurance agents don't tell you this but I have always believed in educating the public so that you are empowered to make the most wise decisions. By being added to a family plan with their increased coverage limits, it could be likely that you are paying more than you need to be given that you likely don't have as many assets as them. If you don't have as many assets to protect, you could likely buy lower coverage, lower coverage can mean lower premiums. The reason I say that "it can" mean lower premiums is because you also have to account for the loss of the multi line discounts for multiple autos, bundling, and so forth. You lose those discounts when you are on your own single line policy.
• Long Term cost is thousands of dollars more. The cost of insurance will be higher for you once you do finally split off onto your own vs. a young adult who has had their own insurance policy since the beginning, Since insurance is based on your history and your score, it is important for you to start building on that history and that score as early as possible, kind of like credit. The longer you wait to buy your own stand alone policy, the longer you are putting off building your own report meaning when the insurance company looks at your history when you start to split off onto your own account at age 30, it will seem as if you've never had insurance given that your history was not yours, it was your parents history. This means that you will pay for a driver who is like a brand new driver without anything on their name. This is a huge CON. This can cost you thousands of dollars in the big picture. This means that you will lock in rates of a higher risk driver, with very little or no history at all, placing your base rates much higher than they would have been if you had your own insurance since age 18. This is like credit scoring, the sooner you establish a good history the sooner you will earn a better rating, resulting in lower premiums. The longer you wait, the worse it will be and the longer you will be rated for using the history you are just starting out with.
When you are financially independent, move away from home permanently, own your own vehicle, and get married, you should most certainly be purchasing your own car insurance policy. You'd be surprised how many 40 something year olds we run into who are still on mom and dads plan. Do yourself a huge favor, get your own insurance, start that history up ASAP and save money over your lifetime of having to be insured. Don't cut corners, it will cost you more in the big picture. Your car insurance rate is based entirely on risk. To insurance providers, age specifically is an indicator of risk because it goes hand in hand with driving experience. The younger you are, the less experience you have on the road, which means you’re more likely to get into an accident and cost the company money in claims. This is one reason the insurance on your parents’ car will be much cheaper. To mitigate the risk, insurance providers increase the rates for young drivers buying a policy on their own. To younger drivers, this might feel unfair. Unfortunately, annual fatal crash statistics and data back up the assumptions of the insurance companies. According to the Insurance Institute for Highway Safety, teens aged 16 to 19 account for the lowest number of drivers on the roads, but are involved in the highest ratio of fatal car accidents compared to all other age groups. Therefore, younger drivers are charged much higher than average car insurance rates. If you maintain coverage history with the same car insurance company on your own, which means you never let your policy lapse or end up temporarily uninsured, the insurance company rewards you with lower rates the more positive history that you build up.
Frequently asked questions:
• Can you drive your parents’ car without insurance? No, this is not advised. If you were to get into an accident, your parents’ insurance provider could refuse to cover the damages which could put your family into financial ruin. All regular operators need to be named on the insurance policy for all coverages to extend properly.
• My parents already have state minimum coverage, by adding me to their policy, won't I still be saving money? If your parents own a home or any other assets like a paid off car, retirement savings, or any other type of assets then your parents are underinsured and leaving themselves open to a tremendous risk by adding you to their policy, being that you are a youthful driver and as explained above, more likely to get into a car accident. If your parents have state minimum coverage they should talk to their agent immediately to make sure they are covered properly. If your parents rent a home or apartment & don't own anything to their name, it could save you money this way and the only thing you need to keep in mind is that your insurance score will start once you get your own policy meaning you will likely pay higher rates for longer years once you do split off onto your own account. Everyone knows that they have to get their own insurance at some point, better to do it sooner than later so that you don't end up being a 50 year old with rates of a 21 year old based on your scoring and rating.
