Age, driving records, insurance history, and credit scores are indeed among the primary factors that insurers consider when calculating car insurance premiums. Unfortunately for young drivers, these factors often work against them, leading to higher insurance costs. Young drivers typically have limited driving experience, shorter insurance histories, and lower credit scores, all of which contribute to the higher premiums they face. It’s a reflection of the increased risk associated with this demographic, and it’s a common challenge for young individuals seeking affordable car insurance.
They typically pay significantly higher car insurance rates, up to three times more in their early teenage years, as demonstrated by this study. However, premiums decrease with each passing year until the age of 25, reflecting the driver’s growing experience and maturity. After age 25, insurance rates tend to stabilize, recognizing the reduced risk associated with more experienced drivers.
While high automobile insurance rates are most apparent during the teenage years, young adults in their early 20s still face significantly higher insurance costs. In many cases, it can be more cost-effective to include young drivers under their parents’ policies. However, this addition can lead to nearly double the vehicle insurance rates for the parents compared to what they paid without a teenage driver on their policy. This reflects the higher risk associated with younger drivers and the impact it has on overall policy premiums.
Reasons Why Young Drivers Pay More for Auto Insurance
Looking deeper into the factors affecting vehicle insurance rates reveal why companies aren’t keen to offer good deals for teenagers.
- Lack of experience is one of the most influential factors. Youngsters are usually new to driving and susceptible to making many mistakes. According to the CDC reports, teenage drivers between 16 – 19 are three times more likely to get involved in a fatal crash at night in comparison to 30 – 59-year-olds. Inexperienced young drivers not only lack the years of driving experience but also may have limited life experience, which can contribute to a lack of awareness about the potential consequences of risky behaviors such as speeding and distracted driving. Understanding the real-world implications of these actions often comes with time and maturity.
- Lack of insurance history is a significant concern for many insurance companies because they have no previous data to assess the risk associated with a teenage driver. As a result, some insurers may be hesitant to offer quotes or may provide less favorable terms to young drivers getting their first policies. This reduces competition in this segment that leads to higher rates.
- Low credit scores are a key factor in premium calculations in many states, and they can affect even the most experienced drivers. For young people, in particular, building a strong credit history can be challenging because their financial obligations are often covered by their parents until they become financially independent, typically in their early twenties, especially if they attend college. This lack of credit history can result in lower credit scores, which can, in turn, lead to higher auto insurance premiums.
- Distracted driving is increasing with all the new gadgets in cars, cell phones and other mobile gadgets and teenagers get distracted more and they are more likely to text and drive. According to the CDC survey in 2019, 39% of high-school students admitted to texting and driving in the last 30 days. Furthermore, distraction increases significantly when there is another youngster in the car. This is a serious concern for auto insurers because when you are texting behind the wheel, it is equivalent to driving blind for at least 5 seconds. This can easily cause accidents involving other vehicles and road users that leads to large claims.
- Reckless driving is one of the main reasons for accidents. In 2020, 35% of teenage male drivers and 18% of teenage female drivers between ages of 15 and 20 who were involved in fatal crashes were speeding at the time. Teenage male drivers are more likely to speed and engage in reckless activities while driving in comparison to female teenagers and therefore, young males pay about 10% higher rates in comparison to females.
- Higher risks result in higher premiums. Based on statistics from the CDC, in 2020, 56% of teenagers aged 16-19 who lost their lives in car accidents were not using seat belts at the moment of the collision. Seat belt usage among teenagers and young adults (16-24 years) in the front seat is consistently lower than that among adults (25 years and older), according to the same report.
- Lack of competition in this market segment not only raises costs but also affects the competitiveness of quotes for teenage drivers. While insurance companies are highly competitive when pricing policies for mature drivers with clean records, extensive insurance histories, and strong credit scores, they seek higher compensation to offset the greater risk associated with teenage drivers, resulting in less competitive quotes for this group.
Teenage drivers are particularly susceptible to premium increases due to negative factors such as speeding tickets and accidents. While a mature driver with a single recent speeding ticket might experience a moderate 23% premium increase, the impact can be much more significant for teenagers.
This heightened effect is because teenage drivers lack the mitigating factors that mature drivers often possess, such as extensive driving experience, continuous insurance coverage, good credit scores, marital status, and homeownership. Consequently, when teenage drivers receive tickets or are involved in accidents, the resulting premium increases tend to be more severe.
How Young Drivers Can Get Lower Auto Insurance Rates
Discounts and saving opportunities may not be many for young drivers but there are still some ways of getting better rates. Here are some of them and how to qualify for:
- Good student discounts are available to students who are under the age of 25 (or less for some companies) and get at least B grades at school. Many automobile insurers offer this discount. Also, they or their parents can get student-away-at-college discounts when they are studying at least 100 miles away from home and not taken the car with them.
- There are many discounts that don’t have any qualification requirements. For example, paying the premium in full can lower auto insurance premiums on average by 9%. This would be a great saving opportunity for people who can afford to settle their bills at once. Alternatively, they can get a discount for setting up an automatic payment facility with many carriers. Buying your policy online may offer a slight discount with many companies as well.
- Consider obtaining six-month auto insurance policies and obtaining multiple quotes after each birthday. Age is a pivotal factor during these years, and aging by a year can potentially lead to reduced insurance premiums.
- Owning a cheap to insure car is one of the most effective ways of keeping teenage driver car insurance rates under control. Details of the cars insured is a very influential factor and it can be controlled, unlike your age. Often parents allocate the oldest car in the family for the teenager’s use and just get Liability only coverage for it. Liability only policies are on average about 1/3 of the price of a full coverage policy and that makes thousands of dollars difference in premiums when the driver is a teenager.
- Finally, one of the most significant saving opportunities has nothing to do with age and that is shopping around. When you are paying substantially higher car insurance premiums, you cannot afford to get just one quote and go with it because you have no clue if that quote is any competitive.
GEICO and State Farm are well-known for offering cost-effective options to young drivers. Additionally, smaller companies like Farm Bureau and Erie can provide competitive rates, although their availability may be limited to specific states. It’s important to note that cheaper quotes often result from the provider’s competitiveness, rather than being indicative of lesser-known or untrustworthy companies. Embracing this tip can lead to substantial long-term savings for young drivers on their auto insurance premiums.