budgeting for a teen driver

Budgeting for A Teen Driver – 5 Tips to Remember

What are the facts about budgeting for a teen driver? When teenagers begin to drive, their parents feel a mixture of joy (they won’t have to drive them to cello or soccer practice anymore!) and fear (what if she wrecks the car?). The financial component of the equation is the next. Younger drivers are more expensive to insure, which makes driving a costly prospect for many families. According to the Insurance Institute for Highway Safety, the fatal collision rate per mile driven is nearly twice as high for 16 to 17-year-olds as it is for 18 to 19-year-olds.

This may explain (at least in part) why many teenagers are postponing what was formerly a highly desired rite of passage. More than half of those surveyed by the AAA Foundation for Traffic Safety in 2013 who were between the ages of 18 and 19 stated they obtained their driver’s license before turning 18 in the research. According to data from 20 years ago, more than two-thirds of teenagers had their licenses by the age of 18.

Delaying a driver’s license obviously requires parents to continue driving their children to after-school activities, which isn’t always possible. Joanna Nesbit, a mother from Bellingham, Washington, decided against insuring a third car when her 17-year-old daughter started driving last year and chose to ride her bike instead. She has to travel herself to different sites for her practice, so I’ve been letting her use the car, she explains. “I used to drive her before. It works for our family because I work from home.”

Nesbit also desires her daughter have driving experience. She says, “I know a lot of students who don’t have licenses or who do have licenses but don’t get to drive very often. Nesbit made it plain that any premium increases brought on by an accident for which her daughter was at fault would be her daughter’s responsibility even if she and her husband pay for the insurance. Since she’s held her license for a year, everything has gone well, according to Nesbit.

Budgeting for A Teen Driver – 5 Tips to Remember

Check out how some families manage the costs associated with having a teen driver.

1. Let your teen operate the cheapest vehicle. If your family has multiple vehicles, Worters advises placing your teen in the least expensive one. If the number of vehicles is equal to or greater than the number of covered drivers on a policy, some insurers may permit clients to do this, according to the expert. “There can be no exceptions to this type of agreement. Even in an emergency, your kid is only allowed to utilize the vehicle to which they have been assigned.” Your rates may rise or the insurer may impose penalties on you if you deviate from this plan and your adolescent gets involved in an accident with an unassigned vehicle.

2. Before your kid obtains a license, talk about costs. Before giving over the keys to the automobile, parents and teenagers should set expectations, as the Nesbits did, advises Mike McCann, a certified financial advisor and president of Perspective Financial Services in Phoenix. Don’t let your adolescent get a license to drive unless you have a clear plan in place for who will pay for the costs of insurance, maintenance, gas, tickets, and accidents, the expert advises.

Before her son, who is now 18 years old, acquired a vehicle at the start of his junior year, in Rochester Hills, Michigan, mother Stephanie Vozza had this conversation with him. We agreed to match whatever funds he saved to purchase a car in order to get a third automobile, she adds. The $3,500 he saved was used to purchase a 2004 Saturn Vue with 105,000 miles on it. Vozza’s kid has a part-time job that enables him to pay for most repairs and the $900 annual insurance premium. She explains, “He recently had a $400 repair.” “He’s saving for college, so we paid for everything.”

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3. Verify your liability protection. “It may be a good time to raise your overall coverage and perhaps consider adding an umbrella policy,” McCann advises high-net-worth families. Your new adolescent driver increases your risk significantly, which might cause a significant hole to form in your retirement savings.

Don’t think that the bare minimum liability insurance required by your state will suffice to protect you in the event of an accident. For instance, California mandates a minimum of $5,000 in total coverage for property damage and $15,000 for bodily injury per accident. According to Worters, “many automobiles today are worth more than $15,000, and medical expenses for one person’s injuries can easily surpass $20,000.” “It’s a good idea to boost your responsibility coverage if your adolescent is determined to be at fault in an accident and the damages exceed insurance limitations. You will be held financially accountable and may face legal action for those amounts not covered by your insurance.” Raising your deductible from $250 or $500 to $1,000 is one method to free up money so you may raise your liability coverage.

Umbrella insurance, which kicks in when your home or car policy’s limitations are reached, is something else you might want to think about. You may get a $1 million personal umbrella liability coverage for about $150 and $300 a year, according to Worters. Before offering you an umbrella liability policy for $1 million more in coverage, “the majority of insurers will require you to have roughly $250,000 of liability insurance on your vehicle policy and $300,000 of liability insurance on your homes policy.”

4. Review rules before your teen leaves for college. Talk about new driving arrangements when your adolescent gets ready to go to college. You should save money if he or she can get around campus without a car. According to Worters, “many insurers will lower premiums for kids who do not have a car on campus and are attending a school at least 100 miles from home.”

In order to utilize his Saturn during vacations and the summer, Vozza’s son will keep it parked in the driveway of the family. She continues, “We have another kid who is 14.” It could eventually be passed on to him.

5. Compare insurance plans. States have different insurance laws. According to Insurance Information Institute spokesman Loretta Worters, adding a kid to a parent’s vehicle coverage is typically less expensive than the adolescent getting a separate policy. You may get a multi-vehicle discount by having your insurance provider insure your teen’s car, she adds. Inquire with your insurance provider about potential reductions for passing a driver’s education course or keeping a B average in the class.

Your insurance rates are also impacted by the safety rating of the car your adolescent drives. Do not, however, assume that your existing insurance will provide the best pricing. According to McCann, not all insurance providers support young drivers. This is a chance for a skilled broker to get their commission by advising you on the best course of action.

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