Every parent dreams of the day their kids graduate from school, move into their own homes, make their ways in the world… and get off their car insurance policies. (Well, a lot of parents do anyway.)
Unfortunately, the job market is not what it used to be, and today’s young people often struggle to find work that will keep their bills paid and a roof over their heads. What’s more, college graduates are often saddled with crushing debt, so moving back home is the only option for many. In fact, a recent survey by Upromise, a division of Sallie Mae, found that 50 percent of college graduates expect to be financially supported by their parents for up to two years after graduation.
Still, most families who accommodate their not-so-little kids living at home have to evaluate their finances and make smart decisions. One major expense we explore for these families is: When is the best time to drop your child from your car insurance policy?
There is no one answer that fits all situations, but there are factors you should be aware of which can help you make the best decision for your family.
Buh bye.
Young Drivers Are Pricey
Adding a young driver to your policy will raise your insurance rates dramatically. Luckily, those rates will drop as young drivers gain experience and avoid traffic violations. (See more on tips for teen drivers and how to keep young drivers’ insurance rates low.)
So how much is a teen going to add to your premium? We ran the numbers and the results aren’t pretty.
Meet Tom, a 40-year-old dad who lives in Colorado and drives a 2014 Honda Accord. The best rate we could find for Tom was $936 a year for “best coverage” which includes 100K/300K of bodily injury (BI), 100K in property damage, 100K/300K in uninsured motorist, with a $250 deductible. (To translate, that means coverage up to $100,000 per individual injured in an accident with a maximum of $300,000 per accident and $100,000 to cover property your vehicle has damaged in an accident. See more on liability and uninsured motorist coverage “in plain English.”)
When we added Tom’s 17-year-old son Junior, the yearly premium skyrocketed to $1,704, an increase of almost 100 percent. The priciest quote we found for Tom and Junior was a whopping $5,244. This highlights just how varied quotes can be and why it’s important to shop your coverage.
While many of us believe that 25 is a magic age in the world of car insurance, in reality, rates drop every year as young drivers gain experience, provided they stay ticket- and accident-free.
If our hypothetical Junior is 20 years old when we add him to his dad’s policy, the premium only jumps up to $1,116, a very affordable $180 increase.
How much does a teen affect your car insurance premium? We ran the numbers-the answer is not pretty.
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What Are the Rules Exactly?
There is no maximum age for a kid to be on a parent’s car insurance policy.
“If your 50-year-old child lives with you, and drives a car you own and insure, your child can be on the policy as long as you like,” explains Loretta Worters with
the Insurance Information Institute.
They don’t even have to live under the same roof. If your child heads off to college driving one of your vehicles, they need to be on your insurance policy.
However, heeds The Zebra’s insurance expert Jeff Medina, some insurance companies will allow a college student to be insured only if they are living on campus.
“If students choose to live off campus, they might be required to have their own insurance policies, so it would be wise to check in with your insurance agent if you have a child attending college away from home,” Medina says.
Most insurers require all household members that have access to your vehicles to be listed on your policy.
“Auto insurance follows the vehicles, not the driver, so insurance companies want to know who has access to the vehicle,” explains Chris Long of LongevityBrokers.com in Denver.
It is possible to exclude a child.
This means that your insurance does not extend to your child at all. While this may lower your premium, if your child gets in a crash, there will be zero coverage, leaving you on the hook for all damages.
Exclusions are not always optional.
“If your child has had too many tickets, a license suspension, or has been caught driving under the influence, your insurance company may require you to exclude your child,” explains Worters.
There Are Advantages
Keeping your child on your insurance policy is absolutely going cost you some coin, but there are some advantages.
Cost: Keeping your child on your policy will save a ton of money (for him, anyway). If Junior gets his own coverage as a 17-year-old, the yearly price tag is a mind-blowing $3,480, but with you, it’s a fraction of that.
Builds their insurance record: Insurers penalize drivers who have coverage gaps or have never had insurance. Putting Junior on your policy helps him establish an insurance record, which will save money when it’s time to move out and get his own policy.
The Disadvantages Are All Yours
There are also definite cons, and most of them fall to the parent.
Cost: Cost is a double-edged sword. “Be prepared for at least a 100-percent increase on your car insurance as a result of having your child on the policy,” warns Worters.
Liability: Adding a family member to your policy means you assume all responsibility for his actions behind the wheel. Worters advises increasing your liability insurance as added protection for your assets.
Your insurance record: If Junior gets a ticket, or has to file a claim due to an accident, it’s going on your insurance record, which will result in a premium increase and higher rates for years to come.
Empty nest?
The Right Time to Give Your Kid the Boot?
There is no definitive answer to this question, but the best one we can come up with is: when your child moves out of your home; buys, titles, and insures his own car, and is financially independent, then it’s time for him to get his own car insurance. And since the car will be titled in your child’s name, you have no insurable interest in the vehicle.
Under no circumstances should you rush your child off your policy before he is properly insured. Moving a teen driver off your policy before he has his own coverage can be a huge financial risk; if he’s in an accident, he is essentially uninsured, and eventually you will end up on the hook for any damages.
With all of these insurance expenses in mind, know that there are also ways to keep the costs of young drivers down. If Junior goes to college at least 100 miles from home and does not have access to a vehicle, ask for a discount. Good student discounts can save up to 15 percent. And passing a defensive driving course can also result in a significant discount. See more discounts here.
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