I’ve had a couple of interesting conversations with clients over the past couple of weeks on car insurance and youthful drivers in the home. The conversations started with me looking at whether I could move them to another one of our car insurance companies and lower the cost of their upcoming renewal. What has made this difficult is there has been a youthful driver, either a teen or child in their early twenties, who has had an accident or two and maybe even a ticket thrown in.
One of the questions the parents have asked is should they remove that son or daughter from their car insurance policy and require them to get their own insurance? While this action may lower the cost of car insurance for the parents, I usually don’t advise parents do this for three reasons; parental liability, denied claims, and expense.
Parental Liability: Even if the child is excluded from the parents’ insurance policy, the parents could still be found liable for an accident their child caused or was involved in. Let’s say the child has their own policy and causes an accident where someone is injured. The injured person could sue to seek lost wages, pay medical care, or payment for pain and suffering from the parents if the child is still a member of the household. In this case, their insurance would not pay any of the damages leaving the parents to pay all of the damages out of their own pocket.
Denied Claims: In addition to denying a liability claim, the parents’ insurance policy would deny a claim for property damage caused by a child if they are excluded from the policy but happened to drive the one of the parent’s cars. There are not too many people who could easily write a check for $10,000, $20,000 or more to repair or total their own car.
Expense: The big winner in excluding a child driver from the parents’ policy is the parents; they will pay less for their car insurance. The child, however, will pay more for their own car insurance. They lose several discounts including the multi-policy (home / auto discount), multi-vehicle discount (more than one vehicle on the policy). In addition they would be charged more for their car insurance due to their credit versus their parents, and penalized for their age.
I quoted one of Sheri’s sons car insurance when he bought a new car a couple of months ago. To place him on his own policy, would have cost him between $3,000 and $4,000 a year or we could put him on our policy and it was about $2,000 a year. We allowed him to benefit from being on our policy provided he pays for his cost and maintains a clean driving record.
Based on these reasons, I recommend the parents keep the child on their policy and not exclude them. I also have several clients who have their teens or young adult drivers pay them for the cost of their car insurance. By encouraging their kids to have some financial skin in the game, they are learn financial responsibility b pay for the privilege of driving, and in many cases, become better drivers because of it. They understand that even one accident could increase the cost of their insurance by 50% to 100% depending on the company. That’s what I call an incentive.
What do you think? Share your questions, comments, and experience with me on our Google +, Facebook and LinkedIn pages. I’d love to hear from you!