Car Insurance for Teens Guide

Getting a driver’s license is a rite of passage and most people are teenagers when they first get their license. Along with the ability to drive legally comes the responsibility of getting car insurance, which is expensive for new drivers. Whether that means a teen getting their own policy or adding them to a parent’s policy, here is what you need to know.

Teen Car Insurance Requirements

The first thing to know about car insurance for teens is that just like car insurance for adults, some types of coverage are mandatory. 

Specifically, that means having the minimum amount of liability insurance required by your state. Liability insurance offers financial protection for drivers who are found to be at fault in a car accident. All 50 states, except for New Hampshire, require drivers to have at least a specified minimum amount of liability insurance.

Liability insurance comes in two basic types:

• Bodily injury liability (BI) coverage
• Property damage liability (PD) coverage

Bodily injury liability insurance is designed to pay medical and other expenses if the policyholder or another driver listed on the policy injures someone in a car accident in which they’re deemed to be at fault. Policies have two different bodily injury liability limits: the bodily injury liability limit per person and the bodily injury liability limit per accident.

The bodily injury liability limit per person is the maximum amount the insurer will pay toward one person’s medical expenses. The per-accident limit is the maximum amount the insurer will pay regardless of how many people are injured. For example, a policy might have a $25,000 per-person bodily injury liability limit and a $50,000 per-accident bodily injury liability limit.

Property damage liability coverage, which pays for repairs to someone else’s vehicle or other property, has its own limits. Each state that requires liability coverage mandates the minimum amount that’s required in each category. For example, drivers may have to purchase at least a 25/50/25 policy, which would provide $25,000 in bodily injury liability coverage per person, $50,000 in bodily injury liability coverage per accident, and $25,000 in property damage coverage.

Depending on your state’s insurance laws, you may also be required to purchase additional insurance, such as underinsured/uninsured motorist coverage.

Collision insurance covers damages to your vehicle from an accident with another vehicle. Comprehensive insurance covers damage from other sources, such as fire or a falling tree. If you finance your car through an auto loan, the lender may require that you purchase collision and comprehensive coverage and keep it until your loan is paid off.

Optional Car Insurance for Teens

Some types of car insurance are optional, both for adult drivers and teens. But if you want to make the teen’s coverage as comprehensive as possible, you might consider adding them. 

Some of the insurance add-ons that may be useful:

You may also want to purchase gap insurance for a financed vehicle, which could help if it’s totaled in an accident. Gap insurance pays the difference between the insurance company’s payment to you and what you still owe on the car loan.

How to Insure a Teen Driver

Depending on your state’s laws, teens may need to have insurance as soon as they get their learner’s permit, ahead of getting a regular license. There are two ways parents can assist their teens in obtaining coverage: add them to the family’s existing car insurance policy or help them purchase a policy of their own. 

Between the two, adding a teen driver to an existing car insurance policy is likely to be the easiest and cheapest option. Again, depending on your state’s insurance laws, you may still have to co-sign for a teen to get their own policy, and they’re likely to pay higher premiums owing to their higher risk status as a new driver.

Adding a teen driver to an existing insurance policy costs an average of $3,726 annually for teens between the ages of 16 and 19. The amount varies by state. For example, in Alaska, adding a teen will increase your premium by 114%. In Hawaii, by 4%. In New York, it will increase your premium by 115%.

Parents looking to insure a teen should first reach out to their current insurance company. Get quotes on how much it would cost to add the teen to your policy at your current levels of liability insurance. If you’re concerned that your teen may put you at greater financial risk, you can also ask about the cost of raising your liability limits.

How to Save Money on Car Insurance for Teens

While adding a teen driver to your household’s car insurance policy could make it more expensive, there are some things you can do to potentially bring the cost down. They include:

• Ask about good student discounts if your teen earns good grades
• Check into discounts for taking driver’s education or defensive driving courses
• Consider bundling your car and homeowners policies with one insurer to save money
• Raise the deductibles on your policy if you can afford to pay them out of pocket
• Enroll in automatic bill payment and electronic document delivery if they entitle you to discounts

Of course, it’s also important for parents to encourage safe driving habits. For example, discuss the dangers of texting or talking on the phone while behind the wheel. Educating teens on the basics of road safety can help minimize their odds of an accident and also keep your car insurance rates as low as possible.

The Bottom Line

There are a lot of decisions to be made once your child starts driving, insurance being one of the most important. As a parent, you have options when it comes to choosing auto insurance for your child.

Take the time to understand these options, speak to your insurance company to find the most affordable options for your family, and shop around for new insurance that may end up being cheaper but provides the same coverage.